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8
THE ART OF
THERAPEUTICS
Shield Therapeutics plc
Annual report and accounts 2018
Improving lives together.
Shield Therapeutics is a commercial
stage pharmaceutical company delivering
innovative specialty pharmaceuticals to
address patients’ unmet medical needs.
Our clear purpose is to help our patients become people
again, by enabling them to enjoy the things that make
the difference in their everyday lives. The Group has a
marketed product, Feraccru®, for the treatment of Iron
Deficiency in adult patients with or without anaemia.
CONTENTS
Strategic report
01 Highlights
02 At a glance
04 Chairman’s statement
06 Markets
08 Feraccru® – a novel Oral Ferric Iron
10 Business model
11 Strategic goals
12 Key performance indicators
13 Chief Executive Officer’s statement and financial review
17 Principal risks and uncertainties and risk management
Corporate governance
20 Board of Directors
22 Corporate governance report
26 Audit and risk report
27 Directors’ remuneration report
32 Directors’ report
34 Statement of Directors’ responsibilities
Financial statements
35 Independent auditor’s report
42 Consolidated statement of profit and loss
and other comprehensive income
43 Group balance sheet
44 Company balance sheet
45 Group statement of changes in equity
46 Company statement of changes in equity
47 Group statement of cash flows
48 Company statement of cash flows
49 Notes (forming part of the financial statements)
72 Glossary
IBC Advisors
F Read more on pages 8 and 9
Highlights (including post-period)
FERACCRU® 2018 OPERATIONAL HIGHLIGHTS
• Positive results for pivotal Phase III AEGIS-CKD study
of Feraccru® vs placebo
• Approved label broadened in Europe to all adults with
Iron Deficiency with or without anaemia – a market
of 40 million patients
• Exclusive licence agreement with Norgine
B.V. to commercialise Feraccru® in Europe, Australia
and New Zealand
• £11 million upfront payment
• up to a €54.5 million in milestone payments
• up to 40% sales royalties
• Recruitment completed for AEGIS-H2H Phase IIIb study
of oral Feraccru® vs intravenous iron therapy
• US New Drug Application accepted for review by FDA;
27 July 2019 target ("PDUFA") date for review completion
FINANCIAL HIGHLIGHTS
• Revenues of £11.9 million (2017: £0.6 million)
• Loss for the year of £1.8 million (2017: £19.6 million)
• Net cash of £9.8 million (2017: £13.3 million)
• £11.0 million upfront received from Norgine
licence agreement extends cash runway significantly
POST-PERIOD HIGHLIGHTS
• Positive results in AEGIS-H2H non-inferiority study
triggering €2.5 million development milestone
receivable from Norgine
• Positive results achieved in long term follow-up
of patients enrolled in AEGIS-CKD clinical study
• Norgine has now commenced promotion of Feraccru®
in UK and Germany
Keep up to date
For more information on our business and all our
latest news and press releases, simply visit us at:
www.shieldtherapeutics.com
Revenue
£11.9m
2018
£11.9m
2017
£0.6m
2016
£0.3m
Loss for the year
£1.8m
2018
£1.8m
2017
2016
£19.6m
£15.0m
Net cash at year end
£9.8m
2018
2017
2016
£9.8m
£13.3m
£21.0m
Shield Therapeutics plc
Annual report and accounts 2018 01
Strategic report At a glance
Shield Therapeutics is a commercial
stage specialty pharmaceutical company
Delivering innovative specialty pharmaceuticals to address
patients’ unmet medical needs.
The Group’s lead asset
for the treatment of
Iron Deficiency
Low dose Oral Iron capsule
Twice-daily without food
High iron availability
Raises Hb and iron levels effectively
Well tolerated
Non-inferior to IV Iron
F Learn more about Feraccru® on pages 8 and 9
Patent protection
until 2035
USA
• NDA filed in September 2018
• Filing accepted by the FDA
in December 2018
Rest of World
• Exploring out-license opportunities
• Licensed to Norgine in Australia
and New Zealand
• PDUFA date set for 27 July 2019
• Evaluating commercialisation options
PROGRESS WITH FERACCRU®
Europe
• Approved for the treatment
of Iron Deficiency in adults,
with or without anaemia
• Licensed to Norgine
for commercialisation
• Norgine has started promotion
in the UK and Germany
• Further EU launches expected in 2020
02
Shield Therapeutics plc
Annual report and accounts 2018
OUR PIPELINE
In addition to Feraccru®’s clinical pipeline, earlier stage pipeline products may be developed by the Company or licensed to partners.
Product
Indication
Status
Pre-clinical
Phase I
Phase II
Phase III
Filed
O n- m arket
Approved for marketing
in EU, No, Is and Ch
PDUFA date 27 July 2019
Plan to initiate
Phase III trial in H2 2019
Formulation work
planned in 2019
Available for partnering
ID (adults) (EU)
ID (adults) (US)
IDA in children (EU and US)
PT20 Iron-based
phosphate binder
Hyperphosphatemia (EU and US)
PT30 Novel IV Iron
PT40 Generic IV Iron
IDA
IDA
INVESTMENT HIGHLIGHTS
Large markets of
patients poorly treated
for Iron Deficiency
2 billion
WHO estimate of global
prevalence of Iron Deficiency
Feraccru® approved
and launched
in Europe
Partnered with Norgine
in Europe, Australia
and New Zealand
US approval
process underway
Feraccru® patents
extend to
PDUFA date 27 July 2019
2035
Out-licensing
opportunities
in the US, China
and elsewhere
Current cash runway
extends to
Other potential
products in pipeline
mid-2020
Shield Therapeutics plc
Annual report and accounts 2018 03
Strategic report Chairman’s statement
A year of refocus
JAMES KARIS
Chairman
I was delighted to be appointed as
Chairman of the Board in January 2019.
I have been a Non-Executive Director
for three years and seen the business
develop very significantly over that time,
and I am now looking forward to the
exciting prospects facing the Group.
Operations and strategy
2018 was a challenging year for the Group but a great deal
has been achieved and the year ended on a far stronger
note than seemed likely in February 2018. The 2017 annual
report set out how, in February 2018, the initial top-line
analysis of the AEGIS-CKD pivotal Phase III study of Feraccru®
suggested that the study had not met its primary endpoint
but that the subsequent detailed analysis of the study showed
that the initial results had been confounded by certain
patient-specific events. After adjusting for appropriate
patient inclusion criteria, the study did in fact meet its
primary and secondary endpoints. However, the requirement
to announce the initial analysis in February caused a major
fall in the Company’s share price which in turn necessitated
significant adjustments to the Group’s strategy, which have
been implemented during 2018.
The main change to the Group’s strategy was the decision
that Shield should no longer build its own sales and marketing
capabilities to promote Feraccru® but should instead
out-license the product. As a consequence the UK and German
sales and marketing operations, which had already been
established by the time of the readout from the AEGIS-CKD
study, were closed down and corporate and administrative
operations substantially reduced. Consequently, employee
numbers have reduced from 50 at the start of 2018 to 15
at 31 December 2018, and the underlying cost base reduced
accordingly. However, given the positive results which emerged
from the detailed analysis of the CKD study and the broadening
of the approved label in Europe to include all Iron Deficiency,
with or without anaemia, the Group has continued to invest in
the Feraccru® R&D programme, in particular the AEGIS-H2H
study, which compared Feraccru® with intravenous iron therapy.
04
Shield Therapeutics plc
Annual report and accounts 2018
The last twelve months have been transformational
for Shield – the commercialisation strategy in Europe
has been successfully switched to an out-licence approach
with the Norgine agreement and we have seen some
great results from the CKD and H2H studies. I am
optimistic that 2019 will see further significant
progress, particularly in the US.
Despite the hiatus caused by the initial AEGIS-CKD results,
the Group has made real and valuable operational progress
in 2018. First, as mentioned above, in March 2018 the European
Commission approved a major broadening of the approved
indications for which Feraccru® can be prescribed to include
all Iron Deficiency, with or without anaemia. Secondly, in
September 2018, Feraccru® was licensed to Norgine B.V.
for commercialisation in Europe, Australia and New Zealand,
providing validation of the commercial prospects for the
product and, importantly for the Group, an upfront payment
of £11 million which has extended the Group’s cash runway
significantly. Also in September recruitment for the AEGIS-H2H
study was completed and in March 2019 we were delighted
to announce that the study showed that Feraccru® is
non-inferior to Ferinject®, the market-leading intravenous
iron therapy. Finally, and potentially most significantly, the
Group filed a New Drug Application (NDA) for Feraccru®
in the US in late September 2018 and the FDA has since
confirmed its acceptance of the filing and set 27 July 2019
as the date for completion of the review. This opens up the
possibility of commercialisation of Feraccru® in the near
future in the US, the world’s largest pharmaceutical market.
Board changes
As previously reported, Andrew Heath stepped down
as Chair of the Board in June 2018 and I would like to
thank Andrew for his contribution to Shield since 2015.
In April 2018 and July 2018 respectively Rolf Hoffmann and
Hans Peter Hasler joined the Board as Non-Executive
Directors. They both have broad and deep experience
of the pharmaceutical sector which has already proved
invaluable and I welcome them both to the Board.
People
I would like to thank everyone who has worked for and
with Shield during 2018. The considerable progress that has
been delivered since the early part of the year could not
have been achieved without the commitment, perseverance
and resilience of all our employees.
James Karis
Chairman
2 April 2019
Shield Therapeutics plc
Annual report and accounts 2018 05
Strategic report Markets
The Iron Deficiency market
A large market with significant unmet needs
Overview
Feraccru® is a novel Oral Iron therapy which provides a
compelling alternative to existing Oral and IV Iron treatments
for Iron Deficiency. Feraccru® is approved in the EU, Norway
and Iceland for the treatment of Iron Deficiency, with or
without anaemia, and in Switzerland for the treatment of
Iron Deficiency Anaemia (IDA) in patients with inflammatory
bowel disease. A New Drug Application (NDA) has been
accepted for review by the FDA in the US, with completion
of the review expected by 27 July 2019.
Iron Deficiency is estimated by the World Health Organization
(WHO) to affect some 2 billion patients globally. Iron Deficiency
occurs when a body does not have enough iron to supply its
needs either because it cannot absorb enough or is losing
iron through bleeding. Iron is present in all cells in the human
body and has several vital functions, such as carrying oxygen
to the tissues from the lungs as a key component of
the haemoglobin protein, acting as a transport medium
for electrons within the cells in the form of cytochromes,
and facilitating oxygen enzyme reactions in various tissues.
Iron Deficiency can be caused by malnutrition, bleeding
and a number of diseases, in particular inflammatory bowel
disease (IBD) and chronic kidney disease (CKD).
Iron Deficiency is one of the most common causes of anaemia.
Anaemia is a condition characterised by abnormally low levels
of red blood cells or low levels of haemoglobin within red
blood cells. There are multiple symptoms of anaemia
including lethargy, fatigue, weakness, depression, impaired
immune system, gastrointestinal disturbances and
neuromuscular imbalances.
The World Health Organization (WHO) has defined
the stages of anaemia in the table below:
World Health Organization (WHO) definition of the stages of anaemia
Anaemia stage
Haemoglobin concentration
Men
Women
Mild
11-13g/dL
11-12g/dL
Moderate
8-11g/dL
8-11g/dL
Management
• Often asymptomatic
• May escape detection
• May present with symptoms
• Warrants timely management to prevent
long term complications
Severe
<8g/dL
<8g/dL
• Warrants investigation and prompt management
IBD
Inflammatory bowel disease (IBD) is a group of autoimmune
disorders primarily comprised of Crohn’s disease (CD) and
ulcerative colitis (UC). Around 3 million people are estimated
to be diagnosed with IBD in the US and “EU5” markets
(France, Germany, Italy, Spain and the UK).
Iron Deficiency Anaemia (IDA) is one of the most frequent
co-morbidities associated with hospitalisation and mortality
in IBD patients. IDA in IBD is caused by reduced iron intake
as patients may avoid specific food groups which increase
gut irritation, poor absorption of iron from food and blood
loss which can occur with an irritated gut.
06
Shield Therapeutics plc
Annual report and accounts 2018
CD and UC diagnosed prevalence (US and EU5) 2017E
Crohn’s disease
Ulcerative colitis
0.7m
0.8m
0.6m
1.3m
0.0
0.3
0.6
0.9
Millions of people
1.2
US
EU5
0.8m
1.5
1.6m
1.8
CKD
Chronic kidney disease (CKD) is the gradual loss of kidney
function over the course of months to years such that
dangerous levels of fluid and waste accumulate in the body.
CKD can result from many underlying diseases including
diabetes, hypertension, glomerulonephritis and polycystic
kidney disease. CKD can lead to cardiovascular disease,
mineral and bone disorders, renal anaemia and renal failure.
CKD Stage 3–4 prevalence rate is around 7% of the population
in the US and EU5, affecting approximately 45 million people.
Prevalence is higher in the elderly population as kidney function
declines with age. As CKD severity progresses, anaemia becomes
increasingly common with incidence of around 50% in Stage 4
and Stage 5 patients. Iron Deficiency Anaemia is the cause of
c.65% of anaemia in CKD. The diagnosis rate of IDA in CKD
patients is very high as IDA is an area of focus for nephrologists.
Therapies for Iron Deficiency
IDA is treated with iron replacement therapy, which can
be delivered orally or intravenously. Oral salt-based iron
therapies are typically used initially as they are inexpensive
and convenient, but they can be slow or are unable to
restore iron levels as they suffer from poor tolerability and
poor compliance. Intravenous (IV) Iron tends to be used in
more severe cases or for patients who do not respond well
CKD clinical staging
Stage
Description
eGFR
(mL/min/1.73m²)
1
2
3a
3b
4
5
Kidney damage w/ normal GFR*
≥90
Kidney damage w/ mildly
reduced GFR
Mild to moderately reduced GFR
Moderately reduced GFR
Severely reduced GFR
60-89
45-59
30-44
15-29
Kidney failure
<15 or dialysis
* Glomerular Filtration Rate
or cannot tolerate salt-based Oral Iron. Due to
the associated risks, IV Iron therapy requires infusion in
a hospital/clinic setting and is therefore more expensive
and inconvenient. Although salt-based Oral Iron has the
majority of market share by prescription volume, IV Iron
represents a substantial share of the iron market in value
terms, due to increasing use and the launch of newer,
more expensive formulations.
Global market for Rx iron products (2013–16)
2013
2014
2015
2016
58%
56%
54%
42%
1.7
44%
46%
1.8
1.8
0.0
0.5
Oral Iron
IV Iron
52%
1.0
1.5
Billions of GBP
2.1
48%
2.0
2.5
Feraccru® (Ferric Maltol) is a stable, non-salt, oral formulation
of ferric iron, which has a novel mechanism of action
compared to salt-based Oral Iron therapies. Feraccru®
delivers iron to the blood stream with minimal formation
of insoluble complexes and free iron in the gut, unlike other
oral therapies. It is well tolerated and has the potential
to be used as a first line treatment for Iron Deficiency.
Shield Therapeutics plc
Annual report and accounts 2018 07
Strategic report Feraccru® – a novel Oral Ferric Iron
Feraccru® is a novel oral formulation that
addresses the needs of patients who cannot
tolerate existing Oral Iron products and offers
a clear alternative to IV Iron therapy
Feraccru® mechanism of action
• Feraccru® is a low dose oral formulation
of a complex of Fe³+ (Ferric Maltol), which
is stable in the gastrointestinal tract
• Existing iron salts deliver iron as Fe²+,
which forms insoluble products in the
GI tract or releases free radicals, both
causing intolerance in patients
• The Fe³+ in Feraccru® remains in complex with
maltol until absorbed and the iron is delivered
to the bloodstream, where it binds to transferrin
• Maltol gets metabolised and excreted in urine
• Unabsorbed Feraccru® passes through the
digestive system as an unaltered complex
and is excreted in faeces
• Feraccru® is a well-tolerated Oral Iron
replacement therapy
• Potential for use as a first line treatment
for patients with Iron Deficiency or as an
alternative to IV Iron in patients failing with
existing Oral Iron salts
• Effectiveness demonstrated in three
Phase III studies
Chemical structure of Feraccru® (Ferric Maltol)
Ferric (3-hydroxy-2-methyl-4H-pyrane-4-one)
M
M
Fe³+
M
Fe³+
Iron remains chelated,
soluble and ready for
absorption if patient
is iron deficient
Fe³+
Iron transport
mechanism
Fe²+
Ferraportin
Fe²+
Fe³+
Transferrin
Most iron enters liver
and bone marrow
08
Shield Therapeutics plc
Annual report and accounts 2018
Feraccru® is positioned to treat patients
who cannot tolerate Oral Iron
Patient diagnosed with ID
• ID causes significant morbidity and failure to treat it adequately with current therapies can
cause the disease to progress to IDA
• IDA arises in diseases like IBD, CKD and chronic heart failure (CHF) and in women with excessive
uterine bleeding, etc.
Oral Iron
Many patients are intolerant of OFP, especially
those with other diseases (e.g. IBD and CKD)
Up to 70% suffer with gastro side effects
Oral Iron Tolerant
Oral Iron Intolerant
• Able to tolerate salt-based Iron products
Fe²+
Fe²+
Insoluble
complexes
+
Free radicals
cause
intolerance
• Stomach pain
• Constipation
• Gut damage
side effects
• Nausea
• Vomiting
Intravenous (IV) Iron
Oral Iron Intolerant
• Iron directly into the blood, but:
• Potential for allergic reactions
• Iron overload
• Bypasses the body’s in-built safety
valve for management of iron levels
• Hospital only
• Resuscitation team required
• High overall cost
• No patients in long term studies of Feraccru®
required interventional IV Iron therapy
Low dose Oral Iron capsule
Twice-daily without food
High iron availability
Raises Hb and iron levels effectively
Well tolerated
Non-inferior to IV Iron
For patients who cannot tolerate traditional Oral Iron products Feraccru® offers
the opportunity to be treated without progressing to intravenous iron therapy
Shield Therapeutics plc
Annual report and accounts 2018 09
Strategic report Business model
How we do business
• Shield operates a lean, semi-virtual operation.
• The fundamental value in the business is the intellectual property.
• Experienced management team uses a variety of external providers
to translate the IP into products which can be sold to realise value
for investors.
Shareholders
Realisation of valu e
Investment
Contract
Research
Organisations
Shareholder
return
Clinical
studies
Upfront payments
Milestones
Royalties
Lean organisation
Experienced management
Sales and marketing
Intellectual property
Regulatory
process
Commercial
partners
V
a
l
u
e
c
r
e
a
t
i
P
r
o
d
u
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t
d
e
v
e
l
o
p
m
e
n
t
Regulatory
agencies and
consultants
o
n
P
r
o
d
u
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t
s
u
p
ply
10
Shield Therapeutics plc
Annual report and accounts 2018
d u ct approval
P r o
Product manufacture
Contract
Manufacturing
Organisations
Value creatio n
Value creatio n
Strategic goals
Focused on strategy
Delivered in 2018
Achieve a broad label for Feraccru® in Europe
Feraccru® now approved for use in ID, with or without anaemia in adults.
Maximise the commercial potential of Feraccru® in key European markets
Broad label achieved and sales and marketing out-licensed to Norgine.
Feraccru® to be filed for NDA in the US
Feraccru® NDA submitted and accepted for review by the FDA. PDUFA date set for 27 July 2019.
Ongoing
Evaluate potential ways of commercialising Feraccru® in the US,
either through a strategic partner or self-commercialisation
Acquire or in-license additional clinical or commercial stage product candidates
Future focus for 2019
Gain marketing approval of Feraccru® in the US
Out-license commercialisation of Feraccru® in the US
Out-license Feraccru® in at least one other significant market
Initiate paediatric Phase III study
Clarify future development of PT20 and PT40
Seek additional development candidates
Keep up to date
For more information on our business and all our
latest news and press releases, simply visit us at:
www.shieldtherapeutics.com
Shield Therapeutics plc
Annual report and accounts 2018 11
Strategic report Key performance indicators
FINANCIAL
Revenue
£11.9m
Loss for the year
£1.8m
2018
£11.9m
2018
£1.8m
2017
£0.6m
2016
£0.3m
Description
The Group measures sales performance
as a key financial metric.
2017
2016
£19.6m
£15.0m
Description
The Group’s loss for the financial
year measures its overall financial
performance during the period.
Performance
Revenue has been significantly impacted
by receipt of an £11.0 million upfront
payment in respect of the licensing deal
with Norgine B.V.
Performance
Receipt of the upfront payment
from Norgine B.V. and reduction of
commercial spend have significantly
reduced the Group’s loss.
Net cash at year end
£9.8m
£9.8m
£13.3m
2018
2017
2016
£21.0m
Description
Given the funding requirements
of the business to ensure successful
commercialisation the availability of
cash is considered to be a key metric.
Performance
The Group’s cash position has been
significantly improved by receipt of the
upfront payment from Norgine B.V.
NON-FINANCIAL
Employees
15
2018
15
2017
2016
50
42
Description
Given the current strategic objectives
of the Group, headcount is considered
to be a key indicator of central cost
control and the appropriateness
of the Group’s structure.
Performance
The Group’s headcount has been
significantly reduced following the decision
in 2018 to rationalise central costs, close
commercial operations and out-license
the Group’s commercial activities.
12
Shield Therapeutics plc
Annual report and accounts 2018
Recruitment - AEGIS-H2H study
100%
2018
2017
2016
25%
100%
62%
Description
Recruitment of patients for the
Group’s key clinical trials is expressed
as a percentage of total required
patient numbers.
Performance
Shield’s H2H study completed
its enrolment during the year
and positive results were
announced in March 2019.
Chief Executive Officer’s statement and financial review
Continued progress
CARL STERRITT
Chief Executive Officer and founder
2018 has been a year of excellent operational progress
for Shield and Feraccru®, despite the setback caused by
the announcement of the initial top-line data from the
AEGIS-CKD study which was covered extensively in the 2017
annual report. However, there was a very significant fall in
share price at that time which necessitated major changes
to the Group’s strategy and resulted in a substantial refocusing
of the Group, but I believe we are well on track to deliver
meaningful value to investors.
The early part of the year was taken up with dealing with
the results of the AEGIS-CKD study. The initial top-line data
announced in February 2018 suggested that the study had
not met its primary endpoint and this disappointed the
market. However, during March 2018, the more detailed
evaluation of the data revealed that there were a number
of confounding factors which, when adjusted for as required
by the study protocol, resulted in the study clearly meeting
its primary endpoint and also achieving statistically significant
positive results across a range of secondary parameters.
Also in March 2018 the European Commission approved
a major broadening of the indication for which Feraccru®
can be marketed in Europe to include all Iron Deficiency
in adults, with or without anaemia. Clearly this provides
significant validation of the merits of Feraccru® and opens
up a much larger patient population which can now be
treated with Feraccru®.
2018 was a year of transition and Shield
is now well positioned to deliver further
positive news through 2019. I expect
Norgine to continue to develop the sales
performance of Feraccru® in the UK and
Germany, and we anticipate concluding
further out-licence agreements to cover
additional geographies. In the US I look
forward to the 27 July 2019 PDUFA date,
which has the potential to unlock the
world’s largest prescription pharmaceutical
market to Feraccru®, which has continued
to demonstrate its effectiveness over
the last 12 months in two demanding
clinical trials. In the meantime, we will
continue to build upon these positive data,
which have demonstrated Feraccru®’s
non-inferiority to the leading IV iron
therapy, its effectiveness in treating
IDA in CKD patients, and the application
of Feraccru® to patients with
iron deficiency.
Shield Therapeutics plc
Annual report and accounts 2018 13
Strategic report Chief Executive Officer’s statement and financial review continued
The impact of the initial announcement led to the need to
reduce cash burn and this resulted in the Board taking the
decision that the Group should no longer aim to build its own
sales and marketing operations in Europe but instead to
out-license Feraccru®. We therefore immediately closed the
sales and marketing operations which we had established in
the UK and Germany and, over the next few months, reduced
the size of the supporting organisation. From having 50
employees at the start of 2018, we now have only 15. I was
saddened by the impact this will have had on the employees
who we had to make redundant, and I thank them for the
contributions they made to Shield, but it was absolutely
necessary to secure the future of the business. I would also
like to thank the remaining employees who continued to
perform so professionally through this upheaval and period
of significant change. We could not be where we now are
without their commitment and hard work.
We immediately started working on the process to
out-license Feraccru® in Europe and found serious
interest from a number of potential licensees. After
a competitive process I am delighted that we were
able to conclude, in September 2018, an exclusive licence
agreement with Norgine B.V. to commercialise Feraccru®
in Europe, Australia and New Zealand. Norgine is a leading
European specialist pharmaceutical company with a presence
in all major European markets and employs over 1,000
people. It has a well-established European infrastructure
to develop, manufacture and commercialise products and
has an excellent track record of commercial success with
specialty pharmaceutical products. Under the terms of
the agreement, Shield received an immediate £11 million
upfront payment, and is eligible to receive up to €4.5 million
in short term development milestones and up to €50 million
in sales milestones upon the achievement of specified
targets. Shield will also receive tiered royalties ranging
from 25% to 40% of net sales of Feraccru®.
It is worth noting that, although Shield had stopped its
own sales and marketing efforts in the UK and Germany
by the end of March 2018, the upward sales momentum of
Feraccru® in those markets continued throughout the year.
This suggests that once doctors and patients have
experienced Feraccru® they want to continue to use it and
I expect, now that Norgine has started its own promotion of
the product in those markets, that sales will grow significantly.
During the second and third quarters of 2018, we were
working hard on preparing a New Drug Application (NDA) for
Feraccru® in the US and we announced on 1 October 2018
that we had successfully submitted the application. Since
then, the FDA has accepted the NDA filing for review and
confirmed that it will complete its review by 27 July 2019.
This is clearly a very exciting opportunity as the US market
remains the largest pharmaceutical market in the world and
there are substantial numbers of patients who suffer from
inflammatory bowel disease and chronic kidney disease,
two of the leading causes of Iron Deficiency Anaemia. We
have already started work on identifying potential sales
and marketing partners for the US market.
14
Shield Therapeutics plc
Annual report and accounts 2018
During 2018 we also began discussions with a number
of Chinese companies which are interested in acquiring
sales and marketing rights to Feraccru® in China. I am
optimistic that we should be able to conclude an
agreement during 2019.
It is important to note that Shield retains ownership of, and
control over, the intellectual property and further development
of Feraccru®, and over the supply chain arrangements. We
manage the supply chain and currently work with several
suppliers to meet our requirements for the active ingredient
and the formulation into finished product. These include
a supplier on Continental Europe which we believe will
give protection to our supply chain in the event of a
disorderly Brexit.
Feraccru® has a strong IP position including granted patents
in Europe and the US over the composition of matter until
2035. This means that Feraccru® offers substantial long term
value to Shield for the next 16 years. It is not unusual in the
pharmaceutical industry for patents to be challenged and one
of our patents was recently the subject of a challenge from
Teva. The European Patient Office found in favour of Shield
in respect of the opposition application on 14 March 2019.
Teva has challenged a second patent but I am confident in
the validity and strength of the patent and we will defend
it vigorously.
We are continuing to invest in targeted development of
Feraccru® where we believe it will increase its commercial
value. The AEGIS-CKD study delivered compelling evidence
of Feraccru®’s benefits in chronic kidney disease to go alongside
the 2016 study results in inflammatory bowel disease. In
January 2019 we announced positive results for the long
term phase of the AEGIS-CKD study. For the patients initially
treated for 16 weeks with Feraccru®, haemoglobin levels
were maintained over the 36-week follow-up period and
the treatment continued to be well tolerated. Those subjects
who were initially treated for 16 weeks with placebo and who
switched to Feraccru® for the follow-up period demonstrated
a similar rise in haemoglobin over their first 16 weeks of
Feraccru® treatment when compared to those initially
treated with Feraccru®, and subsequently maintained
the improvement over the 36-week follow-up period.
Much of our R&D effort during 2018 was spent on completing
recruitment to the AEGIS-H2H study which compared the
performance of Feraccru® with the leading intravenous iron
therapy. The recruitment was completed in September
2018. I was delighted in March 2019 that the study results
demonstrated that Feraccru® is non-inferior to Ferinject®.
This is a very significant outcome as it means that, in
Feraccru®, there is now an oral alternative to IV Iron therapy.
Our plans for 2019 include starting a paediatric Phase III study
which is likely to last two to three years. If successful, children
and young adults suffering from Iron Deficiency will be able
to benefit from Feraccru® along with adults for whom it is
currently approved. We will also explore whether a once-
daily formulation is feasible.
In 2018 we were not able to prioritise or invest in the rest
of our development pipeline but we continue to believe
that PT20 has the potential to be a significant product in
the phosphate binder market. This market continues to
grow and, within it, the new iron-based phosphate binders
are growing particularly rapidly. PT20, which is iron based,
has characteristics which could give it competitive advantages
over existing iron-based products. In 2019 we therefore
intend to develop a new formulation of PT20, suitable for
commercial use, and which will allow a Phase III study to be
carried out. At this stage our intention is to out-license
PT20 to a partner which could carry out the Phase III study
and commercialise the product.
Outlook
2018 was a year of transition and Shield is now well
positioned to deliver further positive news through 2019.
I expect Norgine to continue to develop the sales
performance of Feraccru® in the UK and Germany, and we
anticipate concluding further out-licence agreements to
cover additional geographies. In the US I look forward to the
27 July 2019 PDUFA date, which has the potential to unlock
the world’s largest prescription pharmaceutical market
to Feraccru®, which has continued to demonstrate its
effectiveness over the last twelve months in two demanding
clinical trials. In the meantime, we will continue to build
upon these positive data, which have demonstrated
Feraccru®’s non-inferiority to the leading IV Iron therapy,
its effectiveness in treating IDA in CKD patients, and the
application of Feraccru® to patients with Iron Deficiency.
Financial review
The major financial events in 2018 have been the refocusing
of the cost base to eliminate sales and marketing expenditure,
reduction of administrative spend, and the licence
agreement with Norgine, which resulted in an upfront
receipt of £11 million.
Revenue
Revenue of £11.9 million in 2018 (2017: £0.6 million) was
dominated by the £11.0 million receipt from Norgine as the
non-refundable upfront payment for the licence agreement.
The remaining £0.9 million comprised (a) £0.6 million Shield
sales in the UK and Germany prior to the signing of the
licence agreement, (b) £0.1 million royalties from Norgine
on its sales in the UK and Germany since the signing of
the licence agreement, and (c) £0.2 million sales to AOP
Orphan Pharmaceuticals.
Selling, general and administrative expenses
Selling, general and administrative expenses reduced to
£12.4 million in 2018 from £16.7 million in 2017. This reduction
was largely due to the reduction of selling expenses from
£9.1 million in 2017 to £3.5 million in 2018 as a consequence
of the strategic decision in February 2018 to cease our own
selling and marketing in Europe. General administrative
expenses in 2018 were £6.6 million (2017: £5.2 million).
Reported revenue
£11.9m
2018
£11.9m
2017
£0.6m
2016
£0.3m
Loss for the year
£1.8m
2018
£1.8m
2017
2016
£19.6m
£15.0m
Net cash at year end
£9.8m
£9.8m
£13.3m
2018
2017
2016
£21.0m
The increase was created by redundancy payments and
an increase in non-cash share-based payments from
£0.6 million to £1.2 million. Depreciation and amortisation
expenses were broadly flat at £2.3 million (2017: £2.4 million).
Research and development
Research and development charged to the profit and loss
account was £4.3 million in 2018 (2017: £4.7 million). This
was incurred mainly on the AEGIS-CKD study.
Development costs of £3.3 million (2017: £3.2 million)
incurred on the AEGIS-H2H and PK studies, together with
patents and trademarks were capitalised in line with the
Group’s accounting policy.
Shield Therapeutics plc
Annual report and accounts 2018 15
Strategic report Chief Executive Officer’s statement and financial review continued
Based on the above factors the Directors believe that
it remains appropriate to prepare the financial statements
on a going concern basis. However, the above factors give
rise to a material uncertainty which may cast doubt on
the Group’s and the Company’s ability to continue as a
going concern and, therefore, to continue realising its
assets and discharging its liabilities in the normal course
of business. The financial statements do not include any
adjustments that would result from the basis of preparation
being inappropriate.
Financial outlook
The Group expects Norgine to grow Feraccru® sales in the
UK and Germany during 2019, and increased royalties will flow
from that growth, but launches in the other major European
markets are unlikely in 2019 as Norgine will need to negotiate
pricing and reimbursement in those countries. Following the
results of the AEGIS-H2H clinical study, a €2.5m milestone is
receivable from Norgine and further upfront receivables are
possible in the event that the Group concludes any further
out-licensing agreements. Costs in 2019 will be substantially
lower than in 2018 as selling expenses have been removed
and G&A expenditure will be reduced to around the levels
previously seen in 2017. Total R&D expenditure (i.e. both the
amount charged to the statement of profit and loss and any
amounts capitalised) will be broadly in line with the amount
charged to the statement of profit and loss in 2018. Overall,
the Group’s cash runway extends into the third quarter of
2020 without including potential upfronts from further
out-licensing agreements.
This strategic report was approved on 2 April 2019, by order
of the Board.
Carl Sterritt
Chief Executive Officer
2 April 2019
Financial review continued
Tax
The tax credit of £3.4 million (2017: £1.4 million) is comprised
of £1.9 million of cash claimed and received during 2018 in
respect of R&D tax credits for the 2017 financial year and
an anticipated claim of £1.5 million in respect of the 2018
financial year.
Loss per share
The basic loss per share for 2018 was £0.02 (2017: £0.17).
Details of the loss per share calculations are provided
in Note 11.
Balance sheet
Net assets at 31 December 2018 were £40.4 million
(2017: £41.2 million), including cash of £9.8 million
(2017: £13.3 million) and intangible assets of £31.0 million
(2017: £30.0 million).
Cash flow
The loss for the year of £1.8 million, after adjustment
for non-cash items (depreciation and amortisation,
share-based payments and the 2018 R&D tax credit
accrual of £1.5 million), resulted in a cash inflow
of £0.1 million before working capital adjustments. Working
capital movements amounted to an outflow of £0.3 million
such that the net cash outflows from operations was
£0.2 million. Investment in development, mainly the
AEGIS-H2H clinical study, and intangible assets totalled
£3.3 million, resulting in an overall cash outflow for the
year of £3.5 million.
Going concern
At the year end the Group held £9.8 million of cash.
Since the year end, the Group has achieved a successful
Head-to-Head study, resulting in a milestone receivable
of €2.5 million under the current European out-licensing
agreement with Norgine.
The Directors have considered the funding requirements
of the Group through the preparation of detailed cash flow
forecasts for the period to December 2020. Under current
business plans the current cash resources will extend to the
third quarter of 2020. Based on this, additional funding is
expected to be required by the third quarter of 2020 in
order to support the Group’s going concern status. The
Directors are considering further commercialisation
out-licensing opportunities for Feraccru®, in particular in
the USA and China. These arrangements would be expected
to include upfront payments which, if any one was achieved,
would further extend the Group’s cash runway (being the
period for which the Group’s cash resources are expected
to last). The Directors also believe that other forms of finance,
such as royalty finance underpinned by the existing European
out-licensing agreement with Norgine, are likely to be available
to the Group. However, there can be no guarantee that any
of these opportunities will be successfully concluded.
16
Shield Therapeutics plc
Annual report and accounts 2018
Principal risks and uncertainties and risk management
The Board ensures that all of the key risks are understood and appropriately
managed in light of the Group’s strategy and objectives.
Risk management framework
The management of risk is a key responsibility of the Board
of Directors. The Board ensures that all of the key risks are
understood and appropriately managed in light of the Group’s
strategy and objectives, and that an effective internal risk
management process, including internal controls, is in place
to identify, assess, minimise and manage significant risks.
The Audit Committee oversees risk management on behalf
of the Board. During the year the Committee has overseen
the annual update to the risk management plan introduced
in 2016, which has a number of key objectives:
• to understand the business risks that the Group faces
and to create and manage a register of these risks,
documenting the decisions taken and judgments made;
• to ensure that the risk appetite of the Board is fully
understood by those who are responsible for managing
risk across the business;
• to ensure that mitigating actions and controls are aligned
to the risk appetite of the Board;
• to ensure that risks are appropriately managed or mitigated
and to ensure that, where appropriate, risk is mitigated
through insurance;
• to control systematic risks within the organisation by
maintaining and improving a system of internal controls to
manage risks in decision making, legal contract management
and the processing of financial transactions;
• to confirm and communicate the Group’s policy
on risk management;
• to establish and promote the importance of risk
management across the business;
• to define what risk is and establish an understanding of
when risk reaches an unacceptable level and how it may
be mitigated;
• to establish a methodology for risk identification,
mitigation, monitoring and reporting; and
• to assign responsibility as relevant for risk management
and reporting.
As part of the Group risk strategy, the Audit Committee
appointed a Group Risk Manager in 2016 to manage the
level of risk within the Group.
Operational risk management
• The quality team meets monthly to review all aspects
of quality management across the business.
• Operational meetings between the finance team and all
major divisions of the Company take place to review the
progress of all key projects.
• The Leadership Team meets at least once a week and
holds monthly strategy meetings to identify areas of risk
and to communicate these to the Board as appropriate.
• The Audit Committee meets regularly during the year and
consideration of the risk management plan, risk register
and adequacy of actions taken to mitigate risk are
considered at its meetings.
• The Audit Committee reports regularly to the full Board
during the year. Risks and the adequacy of actions taken
to mitigate them are considered at the Board meetings.
Group Executive
Leadership Team
2.
Identifying
and assessing
risks
1.
Setting
the strategy
The Board
3.
Evaluation
of risks
5.
Monitoring and
reassessing
4.
Design and
implementation
of mitigations
Shield Therapeutics plc
Annual report and accounts 2018 17
Strategic report Principal risks and uncertainties and risk management continued
Principal risks and uncertainties
Risk description
Change Reason for change
Further mitigation
Norgine fails to achieve
Feraccru® potential
in Europe
New risk due to dependency on
Norgine to commercialise Feraccru®
in Europe.
Senior management participates
in Joint Management Committee
with Norgine’s management.
Failure to achieve
US approval of Feraccru®
New risk to reflect the New Drug
Application under review by the FDA.
Senior management is responding
promptly to questions raised by the
FDA during review process.
Dependency on
a single product
Disruption to
product supply
Delays in local
reimbursement
This risk has been replaced
by two risks:
• that Norgine does not achieve
Feraccru®’s potential in Europe; and
• that the US NDA is unsuccessful.
Shield has further progressed its
programme to validate a second
supplier of Drug Substance and Drug
Product for Feraccru® during the year.
The programme to successfully
complete this validation process
will be carefully managed.
This risk has reduced following
completion of the commercial
licensing agreement with Norgine B.V.
The Group will continue to monitor
this risk as it enters new markets.
Reliance on wholesalers
Licensing agreement with Norgine has
reduced the level of risk.
Management of supply changes to
effectively monitor patient supply.
Non-compliance
with regulatory
requirements (e.g. GxP)
No significant change noted.
The Group has an established quality
team in place to address this risk.
18
Shield Therapeutics plc
Annual report and accounts 2018
Key
No change
Increased
Decreased
Risk description
Change Reason for change
Further mitigation
Delays in clinical
study enrolment
Failure to protect IP
Ability to attract
and retain key staff
and members of
the management team
Availability of finance
and sources of capital
at a reasonable cost
The Group’s H2H and PK studies
completed enrolment during the year.
Enrolment into planned future trials
will be carefully monitored.
One patent under challenge from Teva
but management is confident the
patent is robust.
Management fully engaged in defence
of patent.
No significant change noted.
The completion of a licence agreement
for the commercialisation of Feraccru®
during the year provided an upfront
payment of £11.0 million, with the
potential for significant additional
milestone and royalty payments
to follow.
The HR team continues to focus on
remuneration arrangements designed
to attract and retain key staff, following
a significant reduction in headcount
during 2018.
Communication with shareholders
and analysts regarding the potential value
of the Group’s assets. Additional actions
to enhance the commercial worth
of Feraccru®.
Failure to
commercialise PT20
PT20 has a carrying value of
£21.5 million in intangible assets which
is at risk if PT20 is not commercialised.
The Group plans to carry out formulation
work in 2019 which would facilitate a
Phase III clinical study in later years.
Possibility of
disorderly Brexit
Recent political events present the
possibility of a disorderly Brexit.
The Group has strategically located
inventory in continental Europe, has a
key supplier of the drug located in
continental Europe and has conducted
Brexit planning with its commercial
partner Norgine.
Shield Therapeutics plc
Annual report and accounts 2018 19
Strategic report Board of Directors
CARL STERRITT
Chief Executive Officer
and founder
JAMES KARIS
Non-Executive Chairman
PETER LLEWELLYN-DAVIES
Non-Executive Director
Tenure
Ten years
Tenure
Three years
Tenure
Three years
Skills and experience
With approximately 20 years of
management and executive level
experience in pharmaceutical
development and commercialisation
in both large and small company
settings, Carl has led the Company
as its CEO since he founded the
Group in 2008.
Previously, Carl held senior management
roles at United Therapeutics and
Encysive Pharmaceuticals, working on
innovative therapies for the treatment
of pulmonary arterial hypertension. Carl
joined United Therapeutics to establish
the company’s European operations in
preparation for the marketing approval
of Remodulin®, running the subsidiary
for six years. In collaboration with
physicians in Germany, he was
responsible for and holds patents
related to United Therapeutics’
decision to develop and commercialise
treprostinil, now successfully
commercialised in the US as Tyvaso™.
Carl was instrumental in the successful
commercial launch of Thelin™
and the rapid growth of Encysive’s
European operations. Carl founded
Shield Therapeutics after Encysive
was acquired by Pfizer Inc. for
more than $300 million.
Skills and experience
James is a life sciences and healthcare
industry executive with over 35 years
of experience in the pharmaceutical,
healthcare services, technology and
medical device industries. A proven
entrepreneur he is also an experienced
Board member for public and private
companies with extensive experience
in corporate strategy, M&A and all
aspects of company financing. He has
a BS in Management and Economics
from Purdue University and an
MA in Applied Economics from
the American University. Previously
James was Chief Executive Officer
of privately held MAPI Group
and earlier he held executive
management roles at CollabRx,
Entelos, Inc., PAREXEL International,
Pharmaco International and
Baxter International.
External appointments
James is a Director of Saama
Technologies Inc., an AI-based
clinical analytics company.
Committee membership
N
R
Skills and experience
Peter has over 25 years’ experience
in international M&A deals, company
turnarounds, licensing transactions
and financing activities with particular
experience in chemical and healthcare
industries. He is currently CEO of
Apeiron Biologics. Peter was CFO
of Medigene AG between 2012 and
2016 and supported the turnaround
process by out-licensing marketed
and legacy products and enhancing
shareholder value with a large
international investor base. Prior to
that he was CFO of Wilex AG, having
orchestrated its IPO in 2006 and
concluded subsequent partnering
deals and acquisitions. Peter read
Business Management, Banking,
Marketing and Controlling in London,
St. Gallen and Munich, and has a
certificate in Business Studies from
the University of London.
External appointments
Peter is a founder of Accelerate
Partners, supporting private and
listed companies and advising venture
capital and private equity firms, and
is a Non-Executive Director
of Expedeon AG.
Committee membership
A
N
20
Shield Therapeutics plc
Annual report and accounts 2018
Key
A Audit Committee
N Nomination Committee
R Remuneration Committee
Committee Chair
ROLF HOFFMANN
Non-Executive Director
HANS PETER HASLER
Non-Executive Director
Tenure
Nine months
Tenure
Five months
Skills and experience
Rolf brings to Shield over 30 years
of international pharmaceutical
experience, having served in several
senior roles in the industry, most
recently twelve years with Amgen as
Senior Vice President of Commercial
Operations for the United States, and
before that as SVP International and
Europe. He started his pharmaceutical
career at Eli Lilly as a sales representative,
progressing to senior positions including
President of Latin America Operations
and General Manager in Germany. Rolf
holds an MBA from the University of
North Carolina and a master’s degree
from the University of Cologne and is
Adjunct Professor at UNC Kenan-Flagler
Business School.
External appointments
Rolf is currently Chairman of Biotest AG,
sits on the boards of Genmab AG,
EUSA Pharma Inc., Trigemina Inc.
and Paratek Pharmaceuticals Inc.
Skills and experience
Hans joined the Board of
Shield Therapeutics plc in July 2018.
His prior experience includes roles
as COO, Elan Corporation, and several
senior positions at Biogen, Inc., including
Chief Operations Officer. Previously,
Hans was at Wyeth Pharmaceuticals
as Senior Vice President, Chief
Marketing Officer and Managing
Director of Wyeth Group Germany,
Wyeth-Lederle Switzerland,
Austria and CEE.
External appointments
He is the founder and CEO of
Vicarius Pharma and an advisor
to SBTech Global Advisory.
Hans is Chairman of HBM Healthcare
Investments AG in Switzerland, Chairman
of MIAC Medical Imaging Analysis Center
of the University Hospital of Basel,
and a Director of the Board of
Minerva Neuroscience Inc., Boston.
Committee membership
N
R
Committee membership
A
N
Shield Therapeutics plc
Annual report and accounts 2018 21
Corporate governance Corporate governance report
JAMES KARIS
Chairman
On 8 March 2018 the London Stock Exchange published
its revised rules for AIM quoted companies. Rule 26 now
requires that AIM listed companies apply a recognised
corporate governance code on a comply or explain basis.
As a company whose shares are admitted to trading on AIM,
Shield Therapeutics plc is required to comply with the AIM
Rules for Companies. The Board recognises the importance
of sound corporate governance and the disclosures below
set out the Company’s application of the UK Corporate
Governance Code (2016), as well as reasons for any
departures from the Code.
Leadership
The role of the Board
The Board is committed to the highest standards of corporate
governance and to maintaining a sound framework for the
control and management of the Group’s business. It is
responsible for leading and controlling the activities of the
Group, with overall authority for the management and
conduct of the Group’s business, together with its strategy
and development. The Board is also responsible for ensuring
the maintenance of a sound system of internal control and
risk management (including financial, operational and
compliance controls), reviewing the overall effectiveness
of controls and systems in place, the approval of the budget
and the approval of any changes to the capital, corporate
and/or management structure of the Group. The Board
delegates authority as appropriate to its Committees
and members of the Group’s management.
The Board holds meetings at least five times a year, with
additional ad hoc meetings as required. In addition, the
Board and full management team meet for a strategy day
at least once a year to discuss the medium to long term
aspirations of the Group. A full briefing pack is circulated
to the Board for review prior to each meeting.
Effectiveness
Composition of the Board
The Board was comprised of the following Directors during the course of the year, and up to the date of approval of this report.
Role
Chairman
Chairman
CEO
Name
Committee membership
James Karis(i)
Member of Remuneration and Nomination Committee.
Andrew Heath(ii)
Chairman of Nomination Committee. Member of Remuneration Committee.
Carl Sterritt
Independent NED
Peter Llewellyn-Davies
Chairman of Audit Committee. Member of Nomination Committee.
Independent NED
Rolf Hoffmann(iii)
Chairman of Remuneration Committee. Member of Nomination Committee.
Independent NED
Hans Peter Hasler(iv)
Chairman of Nomination Committee. Member of Audit Committee.
(i) Appointed as Chairman 22 January 2019, previously a Non-Executive Director
(ii) Resigned 27 June 2018
(iii) Appointed 6 April 2018
(iv) Appointed 26 July 2018
22
Shield Therapeutics plc
Annual report and accounts 2018
Effectiveness continued
Composition of the Board continued
On 22 January 2019 James Karis was appointed
as Company Chairman, following the resignation of
Andrew Heath on 27 June 2018. James joined the Board in
2016 as an independent Non-Executive Director and was
independent at the time of his appointment as Chairman.
There is a division of responsibilities between the roles
of Chairman and Chief Executive Officer.
No Executive Director holds a directorship of a FTSE 100
company. The ongoing training needs of Directors are
reviewed during the course of each year.
Directors are subject to annual re-election and are re-elected
at the first Annual General Meeting following their appointment.
Resolutions sent to shareholders proposing their re-election
are accompanied by an explanation from the Board of their
suitability for the post.
Details of attendance at Board and Committee meetings
during the financial year are as follows:
Number of
meetings
Attendance
2018 meetings
Main Board
Audit Committee
13
4
Remuneration Committee
3
Nomination Committee
Board strategy day
2
1
All Directors attended
All Committee
members attended
All Committee
members attended
All Committee
members attended
All Directors and
executive management
team members attended
The Non-Executive Directors also meet without the Executive
Directors present on an ad hoc basis during the course of the
year. The Non-Executive Directors consider the performance
of the Executive Directors and the performance of each
Non-Executive Director is considered by the remaining
Non-Executive Directors. The Company does not currently
operate with a named Senior Independent Director; however,
all Non-Executive Directors are independent and are available
to shareholders and as a sounding board for the other
Directors. Given the size of the Board and the shareholder
structure, this is considered to be appropriate.
Independence of Non-Executive Directors
A majority of the Company’s Directors are Non-Executive
Directors and are considered to be independent. At IPO,
W. Health LP signed a relationship agreement with Shield
permitting it to appoint a Director to the Board so long as it
holds over 20% of Shield’s issued share capital (W. Health
presently holds 48.11% of Shield’s issued share capital).
Peter Llewellyn-Davies was put forward for election by
the largest shareholder, W. Health LP. However, whilst as
aforementioned, W. Health LP does have the right under
the relationship agreement to appoint a representative to
the Board. He was appointed independently and does not
in any way represent W. Health LP. Hans Peter Hasler, a
Non-Executive Director of the Company, until January 2018,
served as a Director of AOP, which is a commercial partner
of Shield and an affiliate of MaRu, which is itself a significant
shareholder in Shield. The Board believes him to be
independent as he no longer serves as a member of AOP’s
Board and does not represent its interests. Additionally,
he had no day-to-day interactions with Shield during
his time with AOP.
Board evaluation
Progress against our areas of focus
Area of focus
Progress in 2018
Succession planning
Induction
The Board considers the adequacy and appropriateness of its composition,
that of its Committees and the management team of the Company in order
to fill any potential gaps.
All new Board members receive a comprehensive induction, including the
opportunity to meet management and shareholders and a briefing from
the Company’s Nominated Advisor.
Terms of reference
The Board considers annually the appropriateness of its terms of reference
and those of its Committees.
Shield Therapeutics plc
Annual report and accounts 2018 23
Corporate governance Corporate governance report continued
Board evaluation continued
Progress against our areas of focus continued
Some Non-Executive Directors hold small shareholdings in
the Company amounting to <0.1% of the Company’s total
share capital. The Board composition complies with the
Code as applicable to smaller companies in terms of the
number of independent Non-Executive Directors.
Appointments to the Board
The Nomination Committee is comprised of the
Chairman and the other Non-Executive Directors who are
all considered independent. During the year Rolf Hoffmann
and Hans Peter Hasler were appointed as Directors of the
Company. Their appointment followed a recommendation
to the Board made by the Company’s Nomination Committee.
The Nomination Committee gave consideration to their skills
and experience in comparison to the requirements of the
roles prior to their recommendation. New Directors
received a formal induction following their appointment.
Re-election of Directors and term of service
Details of the proposed re-election of Directors and the
terms of their service contracts/letters of appointment
are provided within the Directors’ remuneration report
on page 29.
Directors’ service contracts and letters of appointment,
outlining their roles and responsibilities, are available for
shareholders to inspect at the Company’s registered office.
Information and support for Directors
Directors receive an induction on their appointment
and ongoing briefings and training relevant to their roles.
In addition to the services of the Company’s retained
professional advisors they have access to independent
professional advice at the Company’s expense where
they judge it necessary to discharge their responsibilities
as Directors.
The Board has the benefit of third party qualifying indemnity
insurance and has access to advice from the Company
Secretary and the Group’s external legal counsel.
Accountability
Composition of the Audit Committee
The Audit Committee is comprised of Peter Llewellyn-Davies
and Hans Peter Hasler, who are both considered to be
independent Non-Executive Directors. Peter Llewellyn-Davies
is Chair of the Committee and is considered to have recent
relevant financial experience, having previously held the
role of CFO of other companies. The Committee has written
terms of reference, which are available for inspection on
request to the Company Secretary.
Financial and business reporting
Prior to approval of the Company’s annual and interim reports
the Board considers the going concern position of the
Company and confirms the Company’s ability to continue as
a going concern for a period of at least twelve months from
the date of their approval. The Directors have assessed the
principal risks facing the Company and actions taken to
mitigate them on pages 18 and 19 of the annual report.
The annual report includes an explanation of the Company’s
business model and strategy, together with an assessment
of its delivery against its objectives.
Risk management and internal control
The Board has overall responsibility for the adequacy of
the Group’s internal control arrangements and consideration
of its exposure to risk. It approves and adopts the annual
update to the Group’s risk management plan, following
recommendations made by the Audit Committee. Further
descriptions of the Audit Committee’s activities in this area
are provided in the audit and risk report on page 26.
The Directors confirm that their assessment of the principal
risks facing the Group was robust. Based upon the robust
assessment of the principal risks facing the Group and their
stress testing-based assessment of the Group’s prospects,
all of which are described above, the Directors have a
reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall
due over the 22-month period from the year end, subject
to the assumptions described above.
The Audit Committee has considered the following significant risks considered in the report of the external auditor.
Significant risks
Responses
Recoverable amounts of intangible assets
Value in use calculations have been reviewed and sensitivities considered in assessing
their appropriateness.
Capitalisation of development costs
The criteria under IFRS for the capitalisation of development costs and application of
the Group capitalisation policy have been reviewed against development costs capitalised.
Recoverability of investments in subsidiaries Value in use calculations have been reviewed and sensitivities considered in assessing
their appropriateness.
The impact of uncertainties due to the UK
exiting the European Union
The Committee has confirmed that appropriate planning has been undertaken in
response to risks presented by Brexit, including the strategic location of inventory
ahead of Brexit and liaison with the Group’s commercial partner Norgine.
Going concern
Forecasts until December 2020 have been reviewed in order to conclude on the
going concern status.
24
Shield Therapeutics plc
Annual report and accounts 2018
Remuneration
The role of the Board and its Remuneration Committee
in establishing a policy on Executive remuneration and an
explanation of the level and components of remuneration
are provided in the Directors’ remuneration report on
pages 27 to 31.
Relations with shareholders
The Executive and Non-Executive Directors proactively
engage with key shareholders and analysts during the
course of the year, including the provision of investor
briefing calls and meeting opportunities following the
release of annual and interim results and fundraises.
General meetings
Details of the Annual General Meeting, which allows
shareholders the opportunity to raise questions with the
Company’s Directors, are provided in the Directors’ report
on page 33. All Directors, including the Chairs of the Audit,
Remuneration and Nomination Committees, will attend
the meeting and be available to answer questions. Separate
resolutions are proposed at the Annual General Meeting
for each substantially separate issue and a resolution will
be proposed for approval of the annual report. Proxy voting
is available for general meetings of the Company and voting
at meetings is conducted based on a poll.
The Company intends to send the Notice of the Annual
General Meeting to shareholders at least 20 working days
before the meeting. Previously this was not the case, as
prior to the adoption of the Code the Company was not
required to do so.
The Directors have assessed the principal risks facing the
Company and actions taken to mitigate them on pages 18
and 19 of the annual report.
James Karis
Chairman
2 April 2019
Accountability continued
Audit Committee and auditor
The activities of the Audit Committee, including those
in relation to the Group’s external auditor, are described
in the audit and risk report on page 26.
Viability statement
In accordance with the provisions in the UK Corporate
Governance Code, the Directors have assessed the viability
of the Group over a 22-month period from 31 December 2018.
The Directors’ assessment has been made with reference
to the Group’s strategy, its cash resources and the principal
risks as described in the annual report. Pages 18 and 19 of
the annual report show how the principal risks are being
managed and mitigated.
Whilst the Directors have no reason to believe the Group
will not be viable over a longer period, a 22-month period
is considered appropriate as there is reasonable visibility
of the commercial options available to the Group over
that period. This period provides the Board with an
appropriate degree of confidence whilst still providing
a longer term outlook.
The process involved considering the sensitivity of
the forecasts to a number of key assumptions and also
consideration of the key assumptions underlying the
forecasts and their reasonableness. In making their
assessment, the Directors have undertaken a sensitivity
analysis of its forecast cash flows and liquidity. The key
assumptions underpinning the assessment during the
period are as follows:
• Commercialisation strategy of out-licensing
in additional territories;
• Pursuit of FDA approval for Feraccru® in the US;
• Success of licensing agreement with Norgine in Europe; and
• Stable cost base in terms of central costs.
The forecasts were prepared on a prudent basis and therefore
exclude potential revenue arising from entry into new
geographical markets during the period.
The principal plausible stress tests are:
• Lower than expected growth and market sales;
• Delays in the US launch of Feraccru® or out-licensing
in additional territories; and
• Delay of launch in additional EU5 territories.
Based on the assessment and stress testing, the Directors
have a reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as they fall
due over a 22-month period from 1 January 2019.
Shield Therapeutics plc
Annual report and accounts 2018 25
Corporate governance Audit and risk report
PETER LLEWELLYN-DAVIES
Audit Committee Chairman
The Audit Committee
Whilst the Board has ultimate responsibility for the review
and approval of the annual and interim reports, and for risk
management, certain aspects are delegated to the Audit
Committee, including:
• Oversight of the risk management framework and regular
risk reviews;
• Monitoring of the financial integrity of the financial statements
of the Group and the involvement of the Group’s auditor
in that process;
• Review of the effectiveness of the Group’s internal controls
and risk management systems and overseeing the process
for managing risks across the Group, including review
of the Group’s corporate risk profile; and
• Oversight of the Group’s compliance with legal requirements
and accounting standards and ensuring that an effective
system of internal financial control is maintained.
Activities of the Audit Committee
The Committee met four times during 2018. Its key
activities included:
Risk management
• Review and approval of the 2018 updated Group risk
management plan;
• Consideration and approval of the Group’s corporate
sign-off limits;
• Review of findings from internal controls testing performed
as part of the external audit and consideration of any
recommendations from the Group’s external auditor;
• Consideration of whistleblowing arrangements
and the Committee’s role in this;
Financial reporting
• Review and approval of the Group’s accounting policies;
• Review of the interim and annual financial statements,
including review and challenge of the key judgments
made in their preparation;
26
Shield Therapeutics plc
Annual report and accounts 2018
• Review of the work of the external auditor and matters
requiring discussion following the 2018 audit;
• Advising the Board that, taken as a whole, the annual
report and accounts are fair, balanced and understandable;
• Review of the basis for the going concern statement
in the annual and interim reports;
External audit
• Recommendation to the Board to approve the
reappointment of KPMG LLP as external auditor;
• Review and approval of the annual audit plan;
• Review of the independence, objectivity, performance
and effectiveness of the auditor; and
• Approval of the Group audit fees and any non-audit
services provided by the external auditor.
External audit
The Group’s external auditor, KPMG LLP, is engaged to
provide its independent opinion on the Group’s financial
statements. The terms of reference and findings of the
auditor have been reviewed by the Audit Committee as part
of the approval process for the 2018 annual report and
accounts. The Group maintains a segregation between its
external auditor and other advisors, with Ernst & Young LLP
appointed as the Group’s tax advisor and Deloitte LLP
appointed as remuneration consultant, to ensure a
separation of the audit from other key advisory work.
The Group’s external auditor last tendered for its
appointment in 2015 and has a tenure of four years.
There are no current plans to retender the audit.
The Audit Committee approves any non-audit services
provided by the external auditor, with consideration to the
threats posed to independence and safeguards in place.
Internal audit
The Audit Committee considers the requirement for an
internal audit function on an annual basis, taking account
of the scale and complexity of the Group’s activities,
number of employees, cost benefits, any issues identified
in management’s assessment of controls during the period
and the adequacy of other management information provided.
The Committee is of the opinion that an internal audit function
is not currently appropriate for the Group given its stage of
development. The Committee will continue to review the
appropriateness of these arrangements.
Peter Llewellyn-Davies
Audit Committee Chairman
2 April 2019
Directors’ remuneration report
ROLF HOFFMANN
Remuneration Committee Chairman
On behalf of the Board I am pleased to present
the Directors’ remuneration report for the year ended
31 December 2018. Although the Company is not subject
to the reporting regulations of Main Market listed companies,
the Remuneration Committee recognises the importance of
shareholder engagement in relation to Executive remuneration.
Accordingly, the Committee has prepared this report as a
matter of best practice and has taken account of those
regulations in doing so.
Remuneration Committee membership and activities
The members of the Remuneration Committee are James Karis
and Rolf Hoffmann. Rolf Hoffmann took over the role of
Committee Chairman from James Karis following the latter’s
appointment as Company Chairman on 22 January 2019.
The Committee meets at least once a year and met three
times during the course of 2018. It has responsibility for:
• Maintaining the remuneration policy;
• Reviewing and determining the remuneration packages
of the Executive Directors;
• Monitoring the level and structure of remuneration of
senior management, including share options and bonus
awards; and
• Production of the Directors’ remuneration report.
Deloitte LLP has acted as an external advisor to the
Committee during the year.
The CEO typically attends meetings and provides
information and support as requested, but is not present
when his own remuneration is discussed. The duties of the
Committee are set out in the terms of reference, which are
available on request from the Company Secretary.
Key remuneration principles
Our remuneration arrangements for Executive Directors
are based on the key principles set out below. We have
articulated how those principles are addressed within
the remuneration policy.
Key principle
How we reflect this in our policy
To promote the long term
success of the Company.
To provide appropriate alignment
with investors’ expectations in
relation to the Company’s
strategy and outcomes.
To provide a competitive
package of base salary, benefits
and short and long term
incentives, with an appropriate
proportion being subject to the
achievement of stretching
individual and corporate
performance conditions.
The Executive Directors’
remuneration opportunity is
performance based and
earned only subject to the
satisfaction of stretching
performance conditions.
Performance conditions
for the annual bonus and
share option schemes are
set such as to align with
shareholders’ interests.
Further alignment between
Executive Directors and
shareholders is achieved by
our application of minimum
shareholding guidelines.
Executive remuneration in 2018
Base salary for the Chief Executive Officer (CEO) was based
on the prior year plus an inflationary increase.
Awards were granted to the CEO under the Bonus Share
Plan and Retention and Performance Share Plan during the
year. Further details are provided on pages 30 and 31.
Looking forward to 2019
The Remuneration Committee is currently considering
the final details of the Directors’ remuneration for 2019.
The Executive Directors’ bonus opportunity and share
options award opportunity for 2019 is expected to be
up to 100% of salary and 125% of salary respectively,
with each award subject to the achievement of
performance conditions.
Board changes
On 27 June 2018 Andrew Heath resigned as Chairman. No
bonus was paid to him during the year and no share options
were awarded or forfeited on his resignation. A contractual
payment of £25,000, amounting to three months of fees,
was paid in relation to his loss of office.
Shield Therapeutics plc
Annual report and accounts 2018 27
Corporate governance Directors’ remuneration report continued
Executive Directors’ remuneration policy
The table below sets out the elements of Executive Directors’ compensation and how each element operates, as well
as the maximum opportunity of each element and any applicable performance measures.
Element and purpose
Operation
Maximum opportunity
Salary increases will generally be in line with
salary increases to other employees, but may
be adjusted to take account of:
• Promotion;
• Change in scope of role;
• Realignment with the market; and
• Development and performance in role (for
example, if a new Director is appointed on
a salary which is increased over time to a
market-competitive level).
No overall maximum has been set, but the
level of benefits provided is determined
taking into account the overall cost to the
Company. Other benefits may be provided
to reflect individual circumstances, such
as relocation expenses.
Contributions for 2019 have been set at 12%
of salary.
Fixed remuneration
Basic salary
To provide a competitive
base salary for the market
and size of company in
order to attract and retain
Executive Directors of a
suitable calibre.
Usually reviewed annually, taking account of:
• Salary increases awarded to the wider workforce;
• Group performance;
• Role and experience;
• Individual performance; and
• Competitive environment.
Benefits
To provide a competitive
range of benefits as part
of total remuneration.
Executive Directors currently receive:
• Car allowance; and
• Private medical insurance.
Executive Directors are eligible to participate in
the Group defined contribution pension scheme. In
appropriate circumstances, Directors may be permitted
to take benefits as a salary cash supplement (which will
ordinarily be reduced to take account of the employer
National Insurance contributions).
Retirement benefits
To provide an appropriate
level of retirement
benefit (or cash
allowance equivalent).
Variable remuneration
Annual bonus
Rewards performance
over the financial year,
including in relation to
performance which
supports the Company’s
longer term objectives.
Awards are based on performance, measured over the
year to which they relate, and split between financial,
strategic and individual objectives. The measures and
weightings are determined each year to reflect the
Company’s strategic priorities. The 2017 bonus was
deferred under the Bonus Share Plan arrangements
described below.
The maximum bonus opportunity is 100%
of base salary.
28
Shield Therapeutics plc
Annual report and accounts 2018
Executive Directors’ remuneration policy continued
Element and purpose
Operation
Variable remuneration continued
Retention and Performance Share Plan (RPSP)
To create alignment
between Executive
Directors’ and shareholders’
interests through the
delivery of performance-
based share awards.
Awards are made in the form of nominal cost options.
Vesting is subject to the achievement of specific
performance conditions over the 2018 financial year.
The plan is subject to malus and clawback provisions.
Maximum opportunity
The maximum award in respect of any
financial year is 125% of base salary.
Awards are made based on an assessment of
the Executive Directors’ performance and cover
a twelve-month period from grant.
The current performance condition is based
on the achievement of four corporate strategic
objectives during 2018. Achievement of each
objective entitles the recipient to 25% of the
total award. The Committee will review and
set performance conditions for future awards.
The Company does not currently invite shareholders to approve new long term incentive schemes and significant changes
to existing schemes.
Non-Executive remuneration policy
The remuneration policy for the Chairman and Non-Executive Directors is to pay fees necessary to attract and retain individuals
of the calibre required, taking into account the size and complexity of the business and the market in which it operates.
The fees of the Non-Executive Directors are agreed by the Chairman and the CEO and the fees of the Chairman are
determined by the Board as a whole.
Fees are paid as a base fee as a member of the Board, together with additional fees for chairmanship of a Board Committee.
All Non-Executive Directors may be reimbursed for expenses reasonably incurred in the performance of their duties.
Neither the Chairman nor the Non-Executive Directors are eligible to participate in the Group’s incentive arrangements.
Directors’ service contracts
Details of the service contracts of Directors in office at the date of approval of this report are set out below.
All Directors are subject to annual reappointment at each Annual General Meeting.
Name
Position
Notice period
Notes
Carl Sterritt
James Karis
Peter Llewellyn-Davies
Rolf Hoffmann
Hans Peter Hasler
CEO
NED (Chairman of Remuneration Committee)
NED (Chairman of Audit Committee)
NED (Chairman of Nomination Committee)
NED
12 months
3 months
3 months
1 month
1 month
Subject to annual reappointment at AGM
Subject to annual reappointment at AGM
Subject to annual reappointment at AGM
Subject to annual reappointment at AGM
Subject to annual reappointment at AGM
James Karis is engaged under a letter of appointment dated 9 January 2019 with a term of three years.
Peter Llewellyn-Davies is engaged under a letter of appointment dated 25 January 2019 with a term of three years.
Rolf Hoffmann’s letter of appointment is dated 5 April 2018 and is for a term of three years commencing on 6 April 2018.
Hans Peter Hasler’s letter of appointment is dated 12 July 2018 and is for a term of three years commencing on 25 July 2018.
Shield Therapeutics plc
Annual report and accounts 2018 29
Corporate governance Directors’ remuneration report continued
Directors’ remuneration
The tables below detail total remuneration earned by each Director in respect of the year.
Directors’ remuneration – year ended 31 December 2018
Name
Executive Directors
Carl Sterritt
Non-Executive Directors
Andrew Heath
James Karis
Peter Llewellyn-Davies
Rolf Hoffmann
Hans Peter Hasler
Salary/fees
£000
Benefits
£000
Bonus
£000
Pensions
£000
Total
remuneration
2018
£000
301
58
283
75
43
46
43
17
—
—
—
—
—
—
—
—
—
—
525
58
283
—
—
—
—
—
—
—
642
75
43
46
43
17
866
A termination payment of £25,000 was paid to Andrew Heath following his resignation during the year, in lieu of his
three months’ period of notice. All amounts noted are included in the tabular disclosures above.
Directors’ remuneration – year ended 31 December 2017
Name
Executive Directors
Carl Sterritt
Joanne Estell
Richard Jones
Non-Executive Directors
Andrew Heath
James Karis
Peter Llewellyn-Davies
Salary/fees
£000
Benefits
£000
Bonus
£000
Pensions
£000
Total
remuneration
2017
£000
300
103
17
100
41
44
605
43
6
3
—
—
—
52
—
—
—
—
—
—
—
—
12
—
—
—
—
12
343
121
20
100
41
44
669
No payments were made to past Directors.
No gains were made on the exercise of share options during the year and no awards of share options vested during the year.
No Director waived any emoluments in respect of the year.
Bonus Share Plan options granted in 2018
The Bonus Share Plan was introduced by the Company
in May 2018 in order to defer the cash cost to the Company
of senior management bonuses until 31 May 2019. Settlement
of awards under the plan are made in the form of either
cash or shares of an equivalent value.
Bonus Share Plan options were granted in the year
to the Executive Directors as follows:
30
Shield Therapeutics plc
Annual report and accounts 2018
Name
Carl Sterritt
Number of
options
317,184
Vesting date
31 May 2019*
* The award to Carl Sterritt was to be settled via either a cash payment
of £80,882 or the issue of the lower of 317,184 shares or shares with
a value of £80,882 at the vesting date. The award was cash settled
during 2018 at the Company’s discretion, once sufficient cash was
available to do so.
If exercised, share options would have had a nominal
exercise price of £0.015 per share. No amounts were paid
on grant. No performance conditions were attached to the
awards, as these had already been achieved at the time
of the issue of the awards.
In total 899,203 options were awarded to senior management
and 512,876 had been settled in cash by the year end.
Retention and Performance Share Plan (RPSP)
options granted in 2018
During the year the Company established the Retention and
Performance Share Plan (RPSP) to incentivise the Executive
Directors and senior management and in order to align their
interests more closely with those of shareholders.
The first awards during 2018 included the following awards
to the Executive Directors.
Directors’ shareholdings
With effect from admission, the Company adopted share
ownership guidelines under which Executive Directors must
acquire shares with a value equal to twice their annual base
salary. Until such time as the guideline is met, Executive
Directors will be expected to retain 50% of shares acquired
under the LTIP (net of sales to cover tax). The table below
discloses the interests of any Directors serving during the
year in the shares of the Company at 31 December 2018.
Name
Carl Sterritt
Number of
options
Vesting date
970,867
31 December 2020
Name
All options are exercisable at a nominal price of £0.015
per share. No amounts were paid on grant.
Performance conditions applicable to the award relate
to corporate objectives for the 2018 financial year, with
a proportion of the award earned for the achievement of
each objective. Attainment of the objectives is measured
on 31 December 2018 and options vest two years thereafter.
In total awards were made over 3,939,577 options, of which
2,059,830 had been forfeited or exercised by the year end,
leaving 1,879,747 outstanding.
Retention Share Plan (RSP)
Various other senior management were granted 251,776
options under the Retention Share Plan during the year,
conditional on their continued employment with the Group
until the vesting date. At the year end 99,286 of these
options had vested, 90,123 had been forfeited and
161,653 remained in issue.
Long Term Incentive Plan (LTIP)
967,549 options held by the Executive Directors and senior
management under the LTIP lapsed during the year after
the associated performance conditions were not met or
staff left employment. At the year end 627,026 options
remained in issue.
Company Share Option Plan (CSOP)
280,690 options held by the Executive Directors and other
employees under the CSOP lapsed during the year and
667,164 were granted. At the year end 558,132 options
remained in issue. Of this amount 44,962 may be exercised
in place of LTIP options held by the participant only, as part
of tax efficient arrangements associated with the LTIP
scheme. They are therefore considered to be non-dilutive
and the dilutive number of options in issue at the year end
was 513,170.
Carl Sterritt
James Karis
Peter Llewellyn-Davies
Shares at
31 December
% of
2018 share capital
10,075,261
36,667
10,000
8.73%
0.03%
0.01%
At 31 December 2018 Carl Sterritt had 976,948 options
outstanding under various share option schemes.
Share performance graph
The graph below shows the performance of the Company’s
shares during the year compared to the FTSE Small Cap.
The mid-market prices of the Ordinary Shares as at
31 December 2018 was £0.305. The highest mid-market
price of the Ordinary Shares during the year was £1.125
and the lowest price was £0.155.
20%
0%
-20%
-40%
-60%
-80%
-100%
January 2018
M arch 2018
February 2018
A pril 2018
June 2018
M ay 2018
D ece m ber 2018
July 2018
August 2018
Septe m ber 2018
O cto ber 2018
N ove m ber 2018
Shield Therapeutics plc
FTSE Small Cap
This report was approved by the Board and signed on its
behalf by:
2018 annual bonus
The Executive Director was awarded a bonus of £202,000
in respect of 2018. A bonus payment of £81,000 was also
awarded during the year in respect of 2017.
Rolf Hoffmann
Remuneration Committee Chairman
2 April 2019
Shield Therapeutics plc
Annual report and accounts 2018 31
Corporate governance
Directors’ report
The Directors present their annual report on the affairs
of the Group, together with the financial statements and
auditor’s report, for the year ended 31 December 2018.
Directors
The Directors of the Company during the year and up to
the date of approval of the annual report were as follows:
Principal activities
Shield Therapeutics plc is a specialty pharmaceutical
company specialising in the development and commercialisation
of late-stage, hospital-focused pharmaceuticals which address
areas of high unmet medical need.
Future development
Disclosures relating to future developments are included in
the Chief Executive Officer’s statement and financial review.
Capital structure
Details of the Company’s share capital are provided in
Note 22. Further details of additional share capital issued
during the prior year are provided in Note 22. The Company
has one class of Ordinary Shares listed on the AIM market
of the London Stock Exchange with a nominal value of
£0.015. Each Ordinary Share carries the right to one vote
at general meetings of the Company and carries no right
to fixed income.
The Directors are not aware of any restrictions on the
transfer of Ordinary Shares in the Company other than certain
restrictions which may from time to time be imposed by law
and regulations.
Details of employee share schemes and share options
in issue are provided in Note 24.
Results and dividend
The consolidated statement of profit and loss and other
comprehensive income is set out on page 42. The Group’s
loss after taxation for the year was £1.8 million.
The Directors do not recommend the payment of a
dividend in respect of the year ended 31 December 2018.
Carl Sterritt
James Karis
Andrew Heath (resigned 27 June 2018)
Peter Llewellyn-Davies
Rolf Hoffmann (appointed 6 April 2018)
Hans Peter Hasler (appointed 26 July 2018)
The role of Company Secretary is undertaken by Lucy Bailey.
Directors’ indemnities
The Group has made qualifying third party indemnity
provisions for the benefit of its Directors, which remain
in force at the date of this report.
Post balance sheet events
None noted.
Research and development
The Group undertakes significant research and
development activities in the course of bringing its core
pharmaceutical assets to market. Details of the expenditure
charge to the consolidated statement of profit and loss,
expenditure capitalised during the year and the accounting
policy for capitalising development expenditure are
provided in the financial statements.
Political donations
The Group made no political donations during the course
of both the current and prior years.
Financial instruments
The Company’s financial risk management objectives and
policies and disclosures regarding its exposure to foreign
currency risk, credit risk and liquidity risk are provided
in Note 21 to the financial statements.
Corporate governance report
The Company’s corporate governance report can be found
on pages 22 to 25 of the annual report. The corporate
governance report forms part of this Directors’ report
and is incorporated into it by cross-reference.
32
Shield Therapeutics plc
Annual report and accounts 2018
Major interests
As at the date of this report, the Company had been
notified of the following shareholders with major interests
in the shares of Shield Therapeutics plc:
W. Health LP
MaRu AG*
Carl Sterritt
Richard Griffiths and family
Christian Schweiger
Universities Superannuation Scheme
* Formerly held by Irorph GmbH
48.11%
10.76%
8.73%
7.79%
4.85%
4.38%
Auditor
Each person who is a Director at the date of approval
of this annual report confirms that:
• So far as the Director is aware, there is no relevant audit
information of which the Group’s auditor is unaware; and
• The Director has taken all reasonable steps as a Director
in order to make himself aware of any relevant audit
information and to establish that the Group’s auditor
is aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of Section 418 of the
Companies Act 2006.
KPMG LLP have expressed their willingness to continue as
auditor and a resolution to reappoint them will be proposed
at the forthcoming Annual General Meeting.
Annual General Meeting
The Annual General Meeting of the Company will be held at
Stephenson Harwood, 1 Finsbury Circus, London EC2M 7SH,
at 10.00am on Thursday 13 June 2019.
By order of the Board
Carl Sterritt
Chief Executive Officer
2 April 2019
Shield Therapeutics plc
Annual report and accounts 2018 33
Corporate governance Statement of Directors’ responsibilities
in respect of the annual report and the financial statements
The Directors are responsible for preparing the annual report
and the Group and parent company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and
parent company financial statements for each financial year.
Under the AIM Rules of the London Stock Exchange they are
required to prepare the Group financial statements in
accordance with International Financial Reporting Standards
as adopted by the European Union (IFRSs as adopted by the
EU) and applicable law and they have elected to prepare the
parent company financial statements on the same basis.
Under company law the Directors must not approve the
financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and
parent company and of their profit or loss for that period.
In preparing each of the Group and parent company financial
statements, the Directors are required to:
• Select suitable accounting policies and then apply
them consistently;
• Make judgements and estimates that are reasonable,
relevant and reliable;
The Directors have decided to prepare voluntarily a
Directors’ remuneration report in accordance with Schedule
8 to The Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 made under the
Companies Act 2006, as if those requirements applied to the
Company. The Directors have also decided to prepare
voluntarily a corporate governance statement as if the
Company were required to comply with the Listing Rules and
the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority in relation to those matters.
Under applicable law and regulations, the Directors are also
responsible for preparing a strategic report and a Directors’
report that complies with that law and those regulations.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the UK governing
the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
We consider the annual report and accounts, taken as a
whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s
position and performance, business model and strategy.
• State whether they have been prepared in accordance
with IFRSs as adopted by the EU;
By order of the Board
Carl Sterritt
Chief Executive Officer
2 April 2019
• Assess the Group and parent company’s ability to
continue as a going concern, disclosing, as applicable,
matters related to going concern; and
• Use the going concern basis of accounting unless
they either intend to liquidate the Group or the parent
company or to cease operations, or have no realistic
alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
company’s transactions and disclose with reasonable accuracy
at any time the financial position of the parent company and
enable them to ensure that its financial statements comply
with the Companies Act 2006. They are responsible for such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open
to them to safeguard the assets of the Group and to prevent
and detect fraud and other irregularities.
34
Shield Therapeutics plc
Annual report and accounts 2018
Independent auditor’s report
to the members of Shield Therapeutics plc
1. Our opinion is unmodified
We have audited the financial statements of Shield Therapeutics
plc (“the Company”) for the year ended 31 December 2018
which comprise the consolidated statement of profit and
loss and other comprehensive income, the Group and
Company balance sheets, the Group and Company statements
of changes in equity, the Group and Company statements of
cash flows, and the related notes, including the accounting
policies in Note 2.
In our opinion:
• The financial statements give a true and fair view of the
state of the Group’s and of the parent company’s affairs
as at 31 December 2018 and of the Group’s loss for the
year then ended;
• The Group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards as adopted by the European Union
(IFRSs as adopted by the EU);
• The parent company financial statements have been
properly prepared in accordance with IFRSs as adopted
by the EU and as applied in accordance with the
provisions of the Companies Act 2006; and
• The financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities are described below. We have fulfilled our
ethical responsibilities under, and are independent of the
Group in accordance with, UK ethical requirements including
2. Material uncertainty related to going concern
the FRC Ethical Standard as applied to listed entities.
We believe that the audit evidence we have obtained
is a sufficient and appropriate basis for our opinion.
Overview
Materiality:
Group financial
statements as a whole
Coverage
Key audit matters
Recurring risks
Event driven
£0.6 million (2017: £0.7 million)
4.3% (2017: 3.3%) of loss before tax
100% (2017: 100%) of Group loss
before tax
vs 2017
Recoverable amounts
of intangibles
Capitalisation of
development costs
Recoverability of
investments in subsidiaries
New: The impact of
uncertainties due to the
UK exiting the European
Union on our audit
The risk
Our response
Going concern
We draw attention to Note 2 on page
49 to the financial statements which
indicates that the cash resources of
the Group will cease to be sufficient
after June 2020 in the absence of
further funding received from the
continued commercialisation of the
Group’s Feraccru® asset, the success
and timing of which are uncertain.
These events and conditions, along
with the other matters explained
in Note 2, constitute a material
uncertainty that may cast significant
doubt on the Group’s and the parent
company’s ability to continue as a
going concern.
Our opinion is not modified in
respect of this matter.
Disclosure quality
There is little judgement involved in
the Directors’ conclusion that risks
and circumstances described in Note 2
to the financial statements represent a
material uncertainty over the ability of
the Group and Company to continue
as a going concern for a period of at
least a year from the date of approval
of the financial statements.
However, clear and full disclosure of
the facts and the Directors’ rationale
for the use of the going concern basis
of preparation, including that there is
a related material uncertainty, is a key
financial statement disclosure and so
was the focus of our audit in this area.
Auditing standards require that to be
reported as a key audit matter.
Our procedures included:
Assessing transparency
• We assessed the completeness
and accuracy of the matters disclosed
in the going concern disclosure with
reference to the audit findings from
our review of the Group’s cash
projections and our understanding of
the status of the Group’s strategies to
further commercialise the Group’s drug
assets. We assessed whether the going
concern disclosure was consistent with
our understanding and that the material
uncertainty was clearly disclosed.
Shield Therapeutics plc
Annual report and accounts 2018 35
Financial statements Independent auditor’s report continued
to the members of Shield Therapeutics plc
3. Other key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified
by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Going
concern is a significant key audit matter and is described in section 2 of our report. In arriving at our audit opinion above,
the other key audit matters, were as follows:
The risk
Our response
The impact of
uncertainties due to the
UK exiting the European
Union on our audit
Refer to pages 18 and 19
(principal risks) and page 14
(Chief Executive Officer’s
statement and financial
review)
Unprecedented levels
of uncertainty
All audits assess and challenge
the reasonableness of estimates,
in particular as described in the
recoverable amount of intangibles
and recoverability of parent
company’s investment in subsidiaries
below, and related disclosures and
the appropriateness of the going
concern basis of preparation of the
financial statements (see above). All
of these depend on assessments of
the future economic environment
and the Group’s future prospects
and performance.
In addition, we are required to
consider the other information
presented in the annual report
including the principal risks disclosure
and the viability statement and to
consider the Directors’ statement
that the annual report and financial
statements taken as a whole is fair,
balanced and understandable and
provides the information necessary
for shareholders to assess the Group’s
position and performance, business
model and strategy.
Brexit is one of the most significant
economic events for the UK and at
the date of this report its effects
are subject to unprecedented levels
of uncertainty of outcomes, with the
full range of possible effects unknown.
We developed a standardised firm-wide approach
to the consideration of the uncertainties arising
from Brexit in planning and performing our audits.
Our procedures included:
Our Brexit knowledge
• We considered the Directors’ assessment of
Brexit-related sources of risk for the Group’s
business and financial resources compared with
our own understanding of the risks. We considered
the Directors’ plans to take action to mitigate the risks.
Sensitivity analysis
• When addressing the recoverable amount of
intangibles and recoverability of parent company’s
investment in subsidiaries and other areas that
depend on forecasts, we compared the Directors’
analysis to our assessment of the full range of reasonably
possible scenarios resulting from Brexit uncertainty
and, where forecast cash flows are required to be
discounted, considered adjustments to discount
rates for the level of remaining uncertainty.
Assessing transparency
• As well as assessing individual disclosures as part
of our procedures on the recoverable amount of
intangibles and recoverability of parent company’s
investment in subsidiaries, we considered all of the
Brexit-related disclosures together, including those
in the strategic report, comparing the overall
picture against our understanding of the risks.
However, no audit should be expected to predict the
unknowable factors or all possible future implications
for a company and this is particularly the case in
relation to Brexit.
36
Shield Therapeutics plc
Annual report and accounts 2018
3. Other key audit matters: our assessment of risks of material misstatement continued
The risk
Our response
Group: Recoverable
amount of intangibles
(£31.0 million;
2017: £30.0 million)
Refer to pages 52-53
(accounting policy) and
pages 60-61 (financial
disclosures)
Our procedures included:
• Control operation: We tested the controls over
the forecasts prepared for the intangible assets,
including annual approval and challenge of those
forecasts by the Directors.
• Our sector experience: We evaluated the
assumptions used, in particular those relating to
forecast receipts from licensees and the discount
rate applied to discount the cash flows.
• Benchmarking assumptions: Compared the
Group’s assumptions to externally derived data in
relation to key inputs such as projected market
growth, royalty rates and discount rates.
• We agreed revenue inputs in the valuation models
to external market analysis, and compared estimated
royalty rates with those already agreed by the Group
and other similar licence agreements in the sector.
• Sensitivity analysis: Performed breakeven analysis
on certain of the assumptions noted above.
• Comparing valuations: Compared the sum of
the discounted cash flows to the Group’s market
capitalisation to assess the overall reasonableness
of those cash flows and considered the reasons
for the current variance, including reference to
analyst forecasts.
• Assessing transparency: Assessed whether the
disclosures about the sensitivity of the outcome
of the impairment assessment to changes in key
assumptions reflected the risks inherent in the
valuation of intangibles.
Forecast-based valuation
These intangible assets relate to the
Group’s two drug products and their
valuation is a significant estimate at
risk of irrecoverability as the drugs
are at a relatively early stage in their
lifecycle. The valuation of these
drugs are also the key consideration
in assessing the recoverability of the
parent company’s investment in
subsidiaries (see below).
The estimated recoverable amount
of the CGUs containing the assets
relating to the drugs is subjective
due to the inherent uncertainty
involved in forecasting and
discounting future cash flows.
The risk has increased due to
increased uncertainty in the future
cash flows.
The cash flows include amounts in
respect of the inflows from anticipated
royalties and other payments from
current or prospective licensees and
outflows of the estimated costs to
progress the commercialisation of
these assets.
The effect of these matters is that,
as part of our risk assessment, we
determined that the value in use
of £31.0 million has a high degree of
estimation uncertainty, with a potential
range of reasonable outcomes
greater than our materiality for the
financial statements as a whole, and
possibly many times that amount.
The financial statements (Note 14)
disclose the sensitivity estimated
by the Group.
Shield Therapeutics plc
Annual report and accounts 2018 37
Financial statements Independent auditor’s report continued
to the members of Shield Therapeutics plc
3. Other key audit matters: our assessment of risks of material misstatement continued
The risk
Our response
Group: Capitalisation
of development costs
(£3.0 million;
2017: £3.2 million)
Refer to pages 52-53
(accounting policy)
and pages 60-61
(financial disclosures)
Parent company:
Recoverability of parent
company’s investment
in subsidiaries
(£103.7 million;
2017: £103.0 million)
Refer to pages 50-51
(accounting policy)
and pages 61-62
(financial disclosures)
Effects of irregularities
The incentive to misstate research
and development expenditure,
whether expensed or capitalised,
to either improve the Group’s loss
position by deferring costs to future
periods or to recognise more
expenditure whilst it is expected
that the Group is loss making,
in order to reduce amortisation
expenditure in the future.
Forecast-based valuation
The carrying amount of the
parent company’s investments
in subsidiaries is significant and at
risk of irrecoverability due to the
carrying amount being in excess of
the Company’s market capitalisation.
The effect of these matters is that,
as part of our risk assessment, we
determined that the value in use of
£103.7 million has a high degree of
estimation uncertainty, with a potential
range of reasonable outcomes
greater than our materiality for the
financial statements as a whole, and
possibly many times that amount.
The financial statements (Note 15)
disclose the sensitivity estimated
by the Company.
Our procedures included:
• Control design: Evaluated the Group’s process for
capitalising and expensing research and
development costs.
• Tests of detail: For a sample of costs both capitalised
and expensed during the year assessed them against
the capitalisation criteria.
Our procedures included:
• Test of detail: With reference to our audit of
the recoverability of intangible assets (see above),
we compared the carrying value of the parent
company’s investments in each of the subsidiaries
against the estimated recoverable value range
of the applicable intangible assets.
• Assessing transparency: Assessed whether the
disclosures about the sensitivity of the outcome
of the impairment assessment to changes in key
assumptions reflected the risks inherent in the
valuation of investments.
38
Shield Therapeutics plc
Annual report and accounts 2018
Normalised loss
before tax
£13.9 million
(2017: £21.0 million)
96+4+I
Loss before tax
Group materiality
Group materiality
£600,000
(2017: £700,000)
£600,000
Whole financial
statements materiality
(2017: £700,000)
£540,000
Range of materiality
at five components
£3,000 to £450,000
(2017: £6,000 to
£636,000)
£30,000
Misstatements
reported to the
Audit Committee
(2017: £35,000)
4. Our application of materiality and an overview
of the scope of our audit
Materiality for the Group financial statements as a whole
was set at £600,000, determined with reference to a
benchmark of Group loss before tax, normalised by
averaging over the last three years due to fluctuations in
the business cycle, of £13.9 million, of which it represents
4.3% (2017: 3.3% of Group loss before tax).
Materiality for the parent company financial statements as
a whole was set at £37,000 (2017: £35,000), determined
with reference to a benchmark of loss before tax, of which
it represents 2.4% (2017: 4.5%).
We agreed to report to the Audit Committee any corrected
or uncorrected identified misstatements exceeding £30,000,
in addition to other identified misstatements that warranted
reporting on qualitative grounds.
Of the Group’s five (2017: five) reporting components, we
subjected three (2017: three) to full scope audits for Group
purposes and two (2017: two) to specified risk-focused
audit procedures. The latter were not individually
financially significant enough to require a full scope audit
for Group purposes, but did present specific individual risks
that needed to be addressed.
The components within the scope of our work accounted
for the percentages illustrated opposite. The Group
reporting covered 100% (2017: 100%) of the total profits
and losses that made up Group loss before tax.
The Group team carried out all of the work on the five
reporting components. We used component materialities,
which range from £3,000 to £450,000 (2017: £3,000 to
£630,000), having regard to the mix of size and risk profile
of the Group across the components.
Group revenue
Group loss before tax
Group total assets
0
0
0
0
0
100%
(2017: 100%)
I100+
100+
I100+
I100+
I 100+
I 93+
100%
(2017: 100%)
100%
(2017: 93%)
93
100
100
100
100
100
7
Full scope for Group
audit purposes 2018
Specified risk-focused
audit procedures 2018
Full scope for Group
audit purposes 2017
Specified risk-focused
audit procedures 2017
Shield Therapeutics plc
Annual report and accounts 2018 39
Financial statements0
+
0
+
7
+
I
Our work is limited to assessing these matters in the context
of only the knowledge acquired during our financial statements
audit. As we cannot predict all future events or conditions
and as subsequent events may result in outcomes that are
inconsistent with judgments that were reasonable at the
time they were made, the absence of anything to report on
these statements is not a guarantee as to the Group’s and
Company’s longer-term viability.
Corporate governance disclosures
We are required to report to you if:
• We have identified material inconsistencies between the
knowledge we acquired during our financial statements
audit and the Directors’ statement that they consider
that the annual report and financial statements taken as
a whole is fair, balanced and understandable and provides
the information necessary for shareholders to assess the
Group’s position and performance, business model
and strategy; or
• The section of the annual report describing the work
of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
We have nothing to report in these respects.
6. We have nothing to report on the other matters
on which we are required to report by exception
Under the Companies Act 2006, we are required to report
to you if, in our opinion:
• Adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
• The parent company financial statements are not in
agreement with the accounting records and returns; or
• Certain disclosures of Directors’ remuneration specified
by law are not made; or
• We have not received all the information and
explanations we require for our audit.
We have nothing to report in these respects.
Independent auditor’s report continued
to the members of Shield Therapeutics plc
5. We have nothing to report on the other
information in the annual report
The Directors are responsible for the other information
presented in the annual report together with the financial
statements. Our opinion on the financial statements does
not cover the other information and, accordingly, we do
not express an audit opinion or, except as explicitly stated
below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and,
in doing so, consider whether, based on our financial
statements audit work, the information therein is materially
misstated or inconsistent with the financial statements or
our audit knowledge. Based solely on that work we have not
identified material misstatements in the other information.
Strategic report and Directors’ report
Based solely on our work on the other information:
• We have not identified material misstatements
in the strategic report and the Directors’ report;
• In our opinion the information given in those reports
for the financial year is consistent with the financial
statements; and
• In our opinion those reports have been prepared
in accordance with the Companies Act 2006.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, other than the material uncertainty
related to going concern referred to above, we have
nothing further material to add or draw attention to
in relation to:
• The Directors’ confirmation within the viability statement
on page 25 that they have carried out a robust assessment
of the principal risks facing the Group, including those
that would threaten its business model, future
performance, solvency and liquidity;
• The principal risks and uncertainties disclosures
describing these risks and explaining how they are being
managed and mitigated; and
• The Directors’ explanation in the viability statement of
how they have assessed the prospects of the Group, over
what period they have done so and why they considered
that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the
Group will be able to continue in operation and meet
its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
40
Shield Therapeutics plc
Annual report and accounts 2018
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 34,
the Directors are responsible for: the preparation of the
financial statements including being satisfied that they give
a true and fair view; such internal control as they determine
is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to
fraud or error; assessing the Group and parent company’s
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern; and using the going
concern basis of accounting unless they either intend to
liquidate the Group or the parent company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and
to issue our opinion in an auditor’s report. Reasonable
assurance is a high level of assurance, but does not guarantee
that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
8. The purpose of our audit work and to whom
we owe our responsibilities
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken
so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s
report, and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s
members, as a body, for our audit work, for this report,
or for the opinions we have formed.
Nick Plumb (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Quayside House
110 Quayside
Newcastle upon Tyne
NE1 3DX
2 April 2019
Shield Therapeutics plc
Annual report and accounts 2018 41
Financial statements Consolidated statement of profit and loss and other comprehensive income
for the year ended 31 December
Revenue
Cost of sales
Gross profit
Operating costs – selling, general and administrative expenses
Operating loss before research and development expenditure
Research and development expenditure
Operating loss
Financial income
Financial expense
Loss before tax
Taxation
Loss for the year
Attributable to:
Equity holders of the parent
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences – foreign operations
Total comprehensive expenditure for the year
Attributable to:
Equity holders of the parent
Total comprehensive expenditure for the year
Earnings per share
Basic and diluted loss per share
Notes
5
7
6
10
10
12
2018
£000
11,881
(311)
11,570
(12,438)
(868)
(4,300)
(5,168)
50
(35)
(5,153)
3,359
2017
£000
637
(155)
482
(16,722)
(16,240)
(4,711)
(20,951)
15
(58)
(20,994)
1,406
(1,794)
(19,588)
(1,794)
(19,588)
4
(41)
(1,790)
(19,629)
(1,790)
(19,629)
(1,790)
(19,629)
11
£(0.02)
£(0.17)
42
Shield Therapeutics plc
Annual report and accounts 2018
Group balance sheet
at 31 December
Non-current assets
Intangible assets
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Current tax asset
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Other liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Currency translation reserve
Retained earnings
Total equity
Notes
2018
£000
2017
£000
14
13
16
17
12
18
30,957
8
29,961
13
30,965
29,974
109
1,031
1,500
9,776
125
1,572
—
13,299
12,416
14,996
43,381
44,970
19
20
(2,548)
(403)
(3,501)
(262)
(2,951)
(3,763)
(2,951)
(3,763)
40,430
41,207
22
23
23
23
23
1,746
88,338
28,358
36
(78,048)
1,746
88,338
28,358
32
(77,267)
40,430
41,207
These financial statements were approved by the Board of Directors on 2 April 2019 and were signed on its behalf by:
Carl Sterritt
Director
Company registered number: 09761509
Shield Therapeutics plc
Annual report and accounts 2018 43
Financial statements
Company balance sheet
at 31 December
Non-current assets
Investments
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Other liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Retained earnings
Total equity
Notes
2018
£000
2017
£000
15
103,697
102,980
103,697
102,980
17
18
35,824
9,003
33,826
11,807
44,827
45,633
148,524
148,613
19
20
22
23
23
23
(685)
(81)
(766)
(301)
—
(301)
147,758
148,312
1,746
88,338
117,323
(59,649)
1,746
88,338
117,323
(59,095)
147,758
148,312
These financial statements were approved by the Board of Directors on 2 April 2019 and were signed on its behalf by:
Carl Sterritt
Director
Company registered number: 09761509
44
Shield Therapeutics plc
Annual report and accounts 2018
Group statement of changes in equity
for the year ended 31 December
Balance at 1 January 2017
Loss for the year
Other comprehensive income:
Foreign currency translation differences
Total comprehensive expense for the year
Transactions with owners, recorded directly in equity
Share issue – exercise of Warrants
Share issue – placing
Share issue – subscription
Equity-settled share-based payment transactions
Balance at 31 December 2017
Loss for the year
Other comprehensive income:
Foreign currency translation differences
Total comprehensive expense for the year
Transactions with owners, recorded directly in equity
Equity-settled share-based payment transactions
Issued
capital
£000
1,622
—
Share
premium
£000
77,963
—
Warrants
reserve
£000
2,760
—
Merger
reserve
£000
28,358
—
—
—
108
15
1
—
—
—
10,235
—
140
—
1,746
—
88,338
—
—
—
—
—
—
—
—
—
—
—
—
—
28,358
—
—
—
—
—
—
(2,760)
—
—
—
—
—
—
—
—
—
Currency
translation
reserve
£000
Retained
earnings
£000
Total
£000
73
—
(41)
(62,380)
(19,588)
48,396
(19,588)
—
(41)
(41)
(19,588)
(19,629)
—
—
—
—
32
—
4
4
—
2,760
1,381
—
560
10,343
1,396
141
560
(77,267)
(1,794)
41,207
(1,794)
—
4
(1,794)
(1,790)
1,013
1,013
Balance at 31 December 2018
1,746
88,338
28,358
36
(78,048)
40,430
Shield Therapeutics plc
Annual report and accounts 2018 45
Financial statements
Company statement of changes in equity
for the year ended 31 December
Balance at 1 January 2017
Loss for the year
Total comprehensive expense for the year
Transactions with owners, recorded directly in equity
Share issue – exercise of Warrants
Share issue – placing
Share issue – subscription
Equity-settled share-based payment transactions
Balance at 31 December 2017
Loss for the year
Total comprehensive expense for the year
Transactions with owners, recorded directly in equity
Equity-settled share-based payment transactions
Issued
capital
£000
1,622
—
—
108
15
1
—
Share
premium
£000
77,963
—
Warrants
reserve
£000
2,760
—
Merger
reserve
£000
117,323
—
Retained
earnings
£000
Total
£000
(63,013)
(783)
136,655
(783)
—
—
10,235
—
140
—
(2,760)
—
—
—
—
—
—
—
—
(783)
(783)
2,760
1,381
—
560
10,343
1,396
141
560
1,746
—
88,338
—
—
—
—
—
—
—
—
—
—
117,323
—
(59,095)
(1,567)
148,312
(1,567)
—
—
(1,567)
(1,567)
1,013
1,013
117,323
(59,649)
147,758
Balance at 31 December 2018
1,746
88,338
46
Shield Therapeutics plc
Annual report and accounts 2018
Group statement of cash flows
for the year ended 31 December
Cash flows from operating activities
Loss for the year
Adjustments for:
Depreciation and amortisation
Equity-settled share-based payment expenses
Financial income
Financial expense
Unrealised foreign exchange losses
Income tax
Decrease in inventories
Decrease/(increase) in trade and other receivables
Decrease in trade and other payables
Increase in other liabilities
Financial income
Financial expense
Income tax received
Net cash flows from operating activities
Cash flows from investing activities
Acquisitions of intangible assets
Capitalised development expenditure
Net cash flows from investing activities
Cash flows from financing activities
Proceeds of Warrants exercise
Proceeds of placing
Proceeds of subscription
Share issue costs
Net cash flows from financing activities
Net decrease in cash
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
2018
£000
2017
£000
(1,794)
(19,588)
2,354
1,013
(50)
35
4
(3,359)
(1,797)
16
541
(953)
141
50
(35)
1,859
2,437
560
(15)
17
39
(1,406)
(17,956)
293
(171)
(409)
101
15
(17)
1,993
(178)
(16,151)
(346)
(2,999)
(235)
(3,173)
(3,345)
(3,408)
—
—
—
—
—
(3,523)
13,299
10,792
1,500
144
(556)
11,880
(7,679)
20,978
9,776
13,299
Shield Therapeutics plc
Annual report and accounts 2018 47
Financial statements
2018
£000
2017
£000
(1,567)
(783)
296
(426)
(1,697)
(1,998)
465
426
148
(15)
(650)
(19,721)
14
15
(2,804)
(20,342)
—
—
—
—
—
10,792
1,500
144
(556)
11,880
(2,804)
11,807
(8,462)
20,269
9,003
11,807
Company statement of cash flows
for the year ended 31 December
Cash flows from operating activities
Loss for the year
Adjustments for:
Equity-settled share-based payment expenses
Financial income
Increase in trade and other receivables
Increase in trade and other payables
Financial income
Net cash flows from operating activities
Cash flows from financing activities
Proceeds of Warrants exercise
Proceeds of placing
Proceeds of subscription
Share issue costs
Net cash flows from financing activities
Net decrease in cash
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
48
Shield Therapeutics plc
Annual report and accounts 2018
Notes (forming part of the financial statements)
for the year ended 31 December
1. General information
Shield Therapeutics plc (the “Company”) is incorporated in England and Wales as a public limited company. The Company
trades on the London Stock Exchange’s AIM, having been admitted on 26 February 2016.
The Company is domiciled in England and the registered office of the Company is at Northern Design Centre, Baltic Business Quarter,
Gateshead Quays NE8 3DF.
Shield Therapeutics plc is the parent entity that holds investments in a number of subsidiaries. Its trading subsidiaries are
engaged in the late-stage development and commercialisation of clinical stage pharmaceuticals to treat unmet medical needs.
Subsidiaries and their countries of incorporation are presented in Note 15.
2. Accounting policies
The consolidated and parent company financial statements have been prepared and approved by the Directors in
accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”).
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in
these financial statements. The financial statements are prepared on the historical cost basis except for derivative financial
instruments that are stated at their fair value. The functional currency of the Company is GBP. The consolidated financial
statements are presented in GBP and all values are rounded to the nearest thousand (£000), except as otherwise indicated.
Company income statement
As permitted by Section 408 of the Companies Act 2006, the Company has not presented its own income statement.
The loss for the financial year per the accounts of the Company was £1.6 million. The total comprehensive expenditure
for the year comprises the net loss and is wholly attributable to the equity holders of Shield Therapeutics plc; therefore,
no statement of comprehensive income has been disclosed.
Basis of preparation
Going concern
At the year end the Group held £9.8 million of cash. Since the year end, the Group has achieved a successful Head-to-Head
study, resulting in a milestone receivable of €2.5 million under the current European out-licensing agreement with Norgine.
The Directors have considered the funding requirements of the Group through the preparation of detailed cash flow forecasts
for the period to December 2020. Under current business plans the current cash resources will extend to the third quarter of
2020. Based on this, additional funding is expected to be required by the third quarter of 2020 in order to support the Group’s
going concern status. The Directors are considering further commercialisation out-licensing opportunities for Feraccru®,
in particular in the USA and China. These arrangements would be expected to include upfront payments which, if any one was
achieved, would further extend the Group’s cash runway. The Directors also believe that other forms of finance, such as royalty
finance underpinned by the existing European out-licensing agreement with Norgine, are likely to be available to the Group.
However, there can be no guarantee that any of these opportunities will be successfully concluded.
Based on the above factors the Directors believe that it remains appropriate to prepare the financial statements on a going
concern basis. However, the above factors give rise to a material uncertainty which may cast doubt on the Group’s and the
Company’s ability to continue as a going concern and, therefore, to continue realising its assets and discharging its liabilities
in the normal course of business. The financial statements do not include any adjustments that would result from the basis
of preparation being inappropriate.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2018.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and
continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared
for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances and
transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
Foreign currency
Transactions in foreign currencies are translated to the Group’s functional currency at the foreign exchange rate ruling at
the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date
are retranslated to the functional currency at the foreign exchange rate ruling at the balance sheet date. Foreign exchange
differences arising on translation are recognised in the statement of profit and loss. Non-monetary assets and liabilities
that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of
the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are
retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined.
Shield Therapeutics plc
Annual report and accounts 2018 49
Financial statements Notes (forming part of the financial statements) continued
for the year ended 31 December
2. Accounting policies continued
Foreign currency continued
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation,
are translated to the Group’s presentation currency, Sterling, at foreign exchange rates ruling at the balance sheet date.
The revenues and expenses of foreign operations are translated at an average rate for the year where this rate approximates
to the foreign exchange rates ruling at the dates of the transactions.
Exchange differences arising from this translation of foreign operations are reported as an item of other comprehensive
income and accumulated in the currency translation reserve.
Financial instruments
(i) Recognition and initial measurement
Trade receivables are initially recognised when they are originated. All other financial assets and financial liabilities are initially
recognised when the Company becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially
measured at fair value plus, for an item not at Fair Value Through Profit or Loss (FVTPL), transaction costs that are directly
attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured
at the transaction price.
(ii) Classification and subsequent measurement
Financial assets
(a) Classification
On initial recognition, a financial asset is classified as measured at: amortised cost; Fair Value through Other Comprehensive
Income (FVOCI) – debt investment; FVOCI – equity investment; or FVTPL.
Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model
for managing financial assets in which case all affected financial assets are reclassified on the first day of the first reporting
period following the change in the business model.
A financial asset is measured at amortised cost if it meets both of the following conditions:
• It is held within a business model whose objective is to hold assets to collect contractual cash flows; and
• Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present
subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis.
All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL.
Investments in subsidiaries are carried at cost less impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits.
(b) Subsequent measurement and gains and losses
Financial assets at FVTPL – these assets (other than derivatives designated as hedging instruments) are subsequently
measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss.
Financial assets at amortised cost – these assets are subsequently measured at amortised cost using the effective interest
method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and
impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.
Financial liabilities and equity
Financial instruments issued by the Company are treated as equity only to the extent that they meet the following two conditions:
(a) They include no contractual obligations upon the Company to deliver cash or other financial assets or to exchange
financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the
Company; and
(b) Where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that
includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will
be settled by the Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own
equity instruments.
50
Shield Therapeutics plc
Annual report and accounts 2018
2. Accounting policies continued
Financial instruments continued
(ii) Classification and subsequent measurement continued
Financial liabilities and equity continued
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument
so classified takes the legal form of the Company’s own shares, the amounts presented in these financial statements for
called up share capital and share premium account exclude amounts in relation to those shares.
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it
is classified as held for trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL
are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other
financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and
foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in
profit or loss.
Where a financial instrument that contains both equity and financial liability components exists these components are
separated and accounted for individually under the above policy.
Intra-group financial instruments
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within
its Group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the
Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will
be required to make a payment under the guarantee.
(iii) Impairment
The Company recognises loss allowances for expected credit losses (ECLs) on financial assets measured at amortised cost,
debt investments measured at FVOCI and contract assets (as defined in IFRS 15).
The Company measures loss allowances at an amount equal to lifetime ECL, except for other debt securities and bank
balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not
increased significantly since initial recognition, which are measured as twelve-month ECL.
Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECL.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when
estimating ECL, the Company considers reasonable and supportable information that is relevant and available without undue
cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical
experience and informed credit assessment and including forward-looking information.
The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.
The Company considers a financial asset to be in default when:
• The borrower is unlikely to pay its credit obligations to the Company in full, without recourse by the Company to actions
such as realising security (if any is held); or
• The financial asset is more than 90 days past due.
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.
Twelve-month ECLs are the portion of ECLs that result from default events that are possible within twelve months after
the reporting date (or a shorter period if the expected life of the instrument is less than twelve months).
The maximum period considered when estimating ECLs is the maximum contractual period over which the Company
is exposed to credit risk.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash
shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows
that the Company expects to receive). ECLs are discounted at the effective interest rate of the financial asset.
Credit-impaired financial assets
At each reporting date, the Company assesses whether financial assets carried at amortised cost and debt securities at
FVOCI are credit impaired. A financial asset is “credit impaired” when one or more events that have a detrimental impact
on the estimated future cash flows of the financial asset have occurred.
Shield Therapeutics plc
Annual report and accounts 2018 51
Financial statements Notes (forming part of the financial statements) continued
for the year ended 31 December
2. Accounting policies continued
Financial instruments continued
(iii) Impairment continued
Write-offs
The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic
prospect of recovery.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using standard costing techniques.
The cost of finished goods comprises raw materials, direct labour, other direct costs and related production overheads.
Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
In arriving at net realisable value provision is made for any obsolete or damaged inventories.
Intangible assets
Research and development
Expenditure on research activities is recognised as an expense in the statement of profit and loss.
Expenditure on development activities directly attributable to an intangible asset is capitalised when the following conditions
are met:
• It is technically feasible to complete the product so that it will be available for use;
• Management intends to complete the product and use or sell it;
• There is an ability to use or sell the product;
• It can be demonstrated how the product will generate probable future economic benefits;
• Adequate technical, financial and other resources to complete the development and to use or sell the product
are available; and
• The expenditure attributable to the product during its development can be reliably measured.
The Group considers that Marketing Authorisation Approval (MAA) regulatory approval in the relevant jurisdiction confirms
these criteria.
Internally developed intangible assets are recorded at cost and subsequently measured at cost less accumulated
amortisation and accumulated impairment losses.
Capitalised directly attributable development costs include clinical trial costs, Chemistry, Manufacturing and Controls (CMC)
costs and contractor costs. Internal salary costs have not been capitalised as they are not considered to directly relate to
bringing the asset to its working condition and employee costs are not allocated by project. Costs relating to clinical trials,
such as the Head-to-Head study, are only capitalised once Marketing Authorisation has been received and prior to this point
are instead expensed as research and development expenditure.
Expenditure in relation to patent registration and renewal of current patents is capitalised and recorded as an intangible
asset. Registration costs are continually incurred as the Group registers these patents in different countries. Patent assets
are stated at cost less accumulated amortisation and accumulated impairment losses. Capitalisation ceases when the related
project concludes.
Amortisation is charged to the statement of profit and loss on the straight-line basis. Amortisation commences when
patents are issued or, in the case of other capitalised development expenditure, once intangible assets are available for use,
being also the point at which revenue is being generated from products. Amortisation is charged as follows:
Patents, trademarks and development costs
– over the term of the patents (currently until 2029–2035)
Chemistry, Manufacturing and Controls costs – over the assumed five-year life associated with the process
(development costs)
Intellectual property purchase costs
– over the term of the patents
Impairment of assets
An impairment review is carried out annually for assets not yet in use. An impairment review is carried out for assets being
amortised or depreciated when a change in market conditions and other circumstances indicates that the carrying value
may not be recoverable. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.
52
Shield Therapeutics plc
Annual report and accounts 2018
2. Accounting policies continued
Intangible assets continued
Impairment of assets continued
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash flows.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less depreciation. The cost of property, plant and equipment
includes the purchase price and any costs directly attributable to bringing it into working order.
Depreciation on property, plant and equipment is calculated to allocate the cost to the residual values over the estimated
useful lives, as follows:
Furniture, fittings and equipment
– 25% reducing balance basis
Computer equipment
– 33.33% straight-line basis
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount.
Revenue
Revenue is net invoice value after the deduction of value-added tax and other sales taxes. Deductions are made for product
returns based on historical experience.
The Group has two revenue streams, being revenue associated with the sale of goods and revenue arising under milestone
payments included in licensing agreements.
Revenue is recognised in the consolidated statement of profit and loss and other comprehensive income when control of
goods passes to the customer. This is deemed to occur when the customer collects and loads the product, resulting in the
legal transfer of title.
Milestone payments under licensing agreements are recognised as revenue in the consolidated statement of profit and loss
when related performance obligations are met, as defined in the licensing agreement, unless the Group has substantial ongoing
performance obligations associated with the milestone still to deliver and the payment is not fixed or non-refundable.
The Norgine contract is assessed to be a right to use licence, on the grounds that the Group’s post-deal activity is not
expected to significantly enhance the value of the asset to Norgine, and includes three types of performance obligation:
• execution of the licence – revenue is recognised at a point in time upon signature of the agreement;
• event-based milestones such as successful completion of clinical trials and achievement of sales thresholds – these
comprise variable consideration and, as such, revenue is only recognised when it is highly probable that no revenue will
be reversed in the future. No revenue has been recognised in respect of these performance obligations in the year; and
• sales-based royalties – these are attributable to the licence and revenue is recognised when the subsequent sale or usage occurs.
Norgine licence agreement
Revenue is recognised at a point in time. The Norgine contract has been assessed as containing a right to use licence as
opposed to a right to access and therefore revenue is recognised at a point in time. If the licence were right to access,
revenue would have been recognised over the life of the agreement. The contract also contains performance obligations
with variable consideration. No amounts have been recognised in relation to these performance obligations in the year as
management have judged that it is not highly probable that any revenue recognised would not be reversed in future periods
since the outcome of the events is uncertain.
Expenses
Financial income and expense
Financing expenses comprise interest payable, finance charges on shares classified as liabilities and net foreign exchange
losses that are recognised in the income statement (see foreign currency accounting policy). Financing income comprises
interest receivable on funds invested, dividend income and net foreign exchange gains.
Interest income and interest payable are recognised in profit or loss as they accrue, using the effective interest method.
Dividend income is recognised in the income statement on the date the entity’s right to receive payments is established.
Foreign currency gains and losses are reported on a net basis.
Shield Therapeutics plc
Annual report and accounts 2018 53
Financial statements
Notes (forming part of the financial statements) continued
for the year ended 31 December
2. Accounting policies continued
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the statement of profit
and loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted
or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against
which the temporary difference can be utilised.
Share-based payments
The Group operates equity-settled, share-based compensation plans, under which the entity receives services from
employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received
in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by
reference to the fair value of the options granted:
• Including any market performance conditions;
• Excluding the impact of any service and non-market performance vesting conditions; and
• Including the impact of any non-vesting conditions.
Non-market performance and service conditions are included in assumptions about the number of options that are
expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified
vesting conditions are to be satisfied.
In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant
date fair value is estimated for the purposes of recognising the expense during the period between the service commencement
period and the grant date.
Share-based payments
The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is
treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair
value, is recognised over the vesting period as an increase to investments in subsidiary undertakings, with a corresponding
credit to equity in the parent entity accounts.
3. Critical accounting judgments and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in Note 2, management is required to make judgments,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the
revision and future periods if the revision affects both current and future periods. The significant judgments and estimates
which may lead to material adjustment in the next accounting period are:
Going concern
Following the receipt of the £11.0 million upfront milestone payment on signing the licence agreement with Norgine and the
preparation of detailed cash flow forecasts, the Directors are of the opinion that the Group has sufficient working capital for
its present requirements, that is for at least twelve months from the date of this report. The Directors therefore consider it
appropriate to adopt the going concern basis of accounting in preparing the financial statements.
Valuation of intellectual property acquired with Phosphate Therapeutics Limited – £21.5 million
The valuation of intellectual property acquired with Phosphate Therapeutics Limited in 2016 is based on cash flow forecasts
for the underlying business and an assumed appropriate cost of capital and other inputs in order to arrive at a value in use
for the asset. The realisation of its value is ultimately dependent on regulatory approval and successful commercialisation
of the asset. Work on the development of a suitable commercial formulation of the drug product is ongoing. In the event
that commercial returns are lower than current expectations this may lead to an impairment. See Note 14 for sensitivity
analysis of key assumptions in this valuation.
Development expenditure
Development expenditure is capitalised when the conditions referred to in Note 2 are met.
54
Shield Therapeutics plc
Annual report and accounts 2018
3. Critical accounting judgments and key sources of estimation uncertainty continued
Valuation of intellectual property associated with Feraccru® – intangible assets of £9.5 million; investments
in Company balance sheet of £76.9 million
The valuation of intellectual property associated with Feraccru® (including patents, development costs and the Company’s
investment in Shield TX (Switzerland) AG) is based on cash flow forecasts for the underlying business and an assumed
appropriate cost of capital and other inputs in order to arrive at a fair value for the asset. The realisation of its value is
ultimately dependent on the successful commercialisation of the asset. An agreement was reached during the year with
a strategic commercial partner for the asset in Europe. An upfront payment of £11.0 million was received as part of the
agreement, with the potential for significant additional milestone payments and royalties to follow. In the event that
commercial returns are lower than current expectations or partner or alternative funding is not available this may lead
to an impairment. No impairment has been recognised to date. See Note 14 for sensitivity analysis of key assumptions
in this valuation.
Deferred tax assets
Estimates of future profitability are required for the decision whether or not to create a deferred tax asset. To date no
deferred tax assets have been recognised.
4. New standards and interpretations
The Group has adopted the following standards, amendments and interpretations in these financial statements for the first
time. The adoption of these pronouncements has not had a material impact on the Group’s accounting policies, financial
position or performance.
From 1 January 2018 the Company adopted IFRS 15 Revenue from contracts with customers. The Company has also
adopted IFRS 9 Financial instruments. No adjustments have been required as a consequence of these standards’ adoption,
as the impact is immaterial. There are no other new or amended standards which impact the Group in the year.
At the balance sheet date the following standards, amendments and interpretations were in issue but not yet effective.
The Group has not early adopted any of these standards, amendments and interpretations.
• IFRS 16 Leases.
The Group is continuing to assess the impact of IFRS 16 and expects from an initial assessment that the impact
on the financial statements will not be material.
5. Segmental reporting
The following analysis by segment is presented in accordance with IFRS 8 on the basis of those segments whose operating
results are regularly reviewed by the Chief Operating Decision Maker (considered to be the Board of Directors) to assess
performance and make strategic decisions about the allocation of resources. Segmental results are calculated on an IFRS basis.
A brief description of the segments of the business is as follows:
• Feraccru® – development and commercialisation of the Group’s lead Feraccru® product.
• PT20 – development of the Group’s secondary asset.
Operating results which cannot be allocated to an individual segment are recorded as central and unallocated overheads.
Revenue
Operating profit/(loss)
Financial income
Financial expense
Tax
Loss for the year
Feraccru®
2018
£000
11,881
2,009
Central and
PT20 unallocated
2018
2018
£000
£000
Total
2018
£000
Feraccru®
2017
£000
Central and
PT20 unallocated
2017
2017
£000
£000
—
—
11,881
637
—
—
(16,718)
(2,047)
(2,186)
(1,904)
(5,273)
(5,168)
50
(35)
3,359
(1,794)
Total
2017
£000
637
(20,951)
15
(58)
1,406
(19,588)
Shield Therapeutics plc
Annual report and accounts 2018 55
Financial statements
Notes (forming part of the financial statements) continued
for the year ended 31 December
5. Segmental reporting continued
The revenue analysis in the table below is based on the country of registration of the fee-paying party. £11.1 million (2017: £Nil)
of revenue is derived from milestone payments from commercial partners. The remainder of revenue is derived from the
sale of goods. All revenue in 2017 related to the sale of goods.
Year ended
31 December
2018
£000
Year ended
31 December
2017
£000
171
11,710
11,881
70
567
637
Year ended
31 December
2018
£000
Year ended
31 December
2017
£000
11,025
516
126
214
11,881
Feraccru®
£000
Central and
PT20 unallocated
£000
£000
—
497
93
47
637
Total
£000
12,643
(2,068)
21,627
(57)
9,111
(826)
43,381
(2,951)
10,575
21,570
8,285
40,430
435
—
2,999
1,919
—
—
—
—
—
2,354
—
2,999
Feraccru®
£000
Central and
PT20 unallocated
£000
£000
9,623
(3,570)
23,451
(16)
6,053
23,435
11,896
(177)
11,719
421
—
3,173
2,016
—
—
—
—
—
Total
£000
44,970
(3,763)
41,207
2,437
—
3,173
UK
Europe
An analysis of revenue by customer is set out in the table below.
Customer A
Customer B
Customer C
Other customers
As at 31 December 2018
Segment assets
Segment liabilities
Total net assets
Depreciation, amortisation and impairment
Capital expenditure
Capitalised development costs
As at 31 December 2017
Segment assets
Segment liabilities
Total net assets
Depreciation, amortisation and impairment
Capital expenditure
Capitalised development costs
All material segmental non-current assets are located in the UK.
56
Shield Therapeutics plc
Annual report and accounts 2018
6. Expenses and auditor’s remuneration
Loss for the year has been arrived at after charging:
Research and development expenditure
Fees payable to Company’s auditor and its associates for the audit of parent company and consolidated
financial statements
Fees payable to Company’s auditor and its associates for other services:
The audit of Company’s subsidiaries
Corporate finance transactions
Tax compliance services
Other services
7. Operating costs – selling, general and administrative expenses
Operating costs are comprised of:
Selling costs
General administrative expenses
Depreciation and amortisation
Year ended
31 December
2018
£000
Year ended
31 December
2017
£000
4,300
4,711
34
26
50
3
10
29
23
—
2
5
Year ended
31 December
2018
£000
Year ended
31 December
2017
£000
3,495
6,589
2,354
12,438
9,133
5,152
2,437
16,722
8. Staff numbers and costs
The average number of persons employed by the Group (including Directors) during the year, analysed by category, was as follows:
R&D
Medical
Commercial
Finance and administration
The number of staff employed by the Group at 31 December 2018 was 15 (31 December 2017: 50).
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Share-based payments (see Note 24)
Other employee benefits
Pensions
Number of employees
2018
Number
2017
Number
5
4
8
8
25
2018
£000
4,308
1,213
117
138
5,776
6
6
17
18
47
2017
£000
5,150
560
272
206
6,188
Shield Therapeutics plc
Annual report and accounts 2018 57
Financial statements
Notes (forming part of the financial statements) continued
for the year ended 31 December
9. Directors’ remuneration
Carl Sterritt
Joanne Estell
Richard Jones
Andrew Heath
James Karis
Peter Llewellyn-Davies
Rolf Hoffmann
Hans Peter Hasler
Salary/fees
£000
Bonus
£000
2018
Taxable
benefits
£000
Pensions
£000
301
—
—
75
43
46
43
17
525
283
—
—
—
—
—
—
—
283
58
—
—
—
—
—
—
—
58
—
—
—
—
—
—
—
—
—
Total
£000
642
—
—
75
43
46
43
17
866
Salary/fees
£000
Bonus
£000
2017
Taxable
benefits
£000
Pensions
£000
300
103
17
100
41
44
—
—
605
—
—
—
—
—
—
—
—
—
43
6
3
—
—
—
—
—
52
—
12
—
—
—
—
—
—
12
Total
£000
343
121
20
100
41
44
—
—
669
The aggregate of remuneration and amounts receivable under long term incentive schemes of the highest paid Director was £Nil
(2017: £Nil).
No Directors exercised share options in the year (2017: none). One Director received shares or share options under long term
incentive schemes in the year (2017: two).
£60,000 was paid to third parties in respect of Director services (2017: £Nil), relating to the services of Rolf Hoffmann and
Hans Peter Hasler.
A termination payment of £25,000 was paid to Andrew Heath following his resignation during the year, in lieu of his three
months’ period of notice.
All amounts noted are included in the tabular disclosures above.
Related party transactions
The Group has no disclosable related party transactions other than key management compensation.
Key management compensation information is as follows:
Wages and salaries
Share-based payments
Other employee benefits
Pensions
10. Financial income and expenses
Financial income
Net foreign exchange gains
Total interest income on financial assets measured at amortised cost
Financial expense
Net foreign exchange losses
Total interest expense on financial liabilities measured at amortised cost
Bank charges
58
Shield Therapeutics plc
Annual report and accounts 2018
2018
£000
2,075
1,018
104
77
3,274
2017
£000
2,133
556
139
106
2,934
Year ended
31 December
2018
£000
Year ended
31 December
2017
£000
30
20
50
—
15
15
Year ended
31 December
2018
£000
Year ended
31 December
2017
£000
—
(22)
(13)
(35)
(41)
—
(17)
(58)
11. Loss per share
Basic and diluted
(1,794)
116,426
(0.02)
(19,588)
112,358
2018
2017
Loss
£000
Weighted
shares
000
Loss
per
share
£
Loss
£000
Weighted
shares
000
Loss
per
share
£
(0.17)
Basic EPS is calculated by dividing the profit or loss for the year attributable to ordinary equity holders of the parent
by the weighted average number of Ordinary Shares outstanding during the year.
Diluted EPS is calculated by dividing the profit or loss attributable to ordinary equity holders of the parent by the weighted
average number of Ordinary Shares outstanding during the year plus the weighted average number of Ordinary Shares that
would be issued on conversion of all the dilutive potential Ordinary Shares into Ordinary Shares.
The diluted loss per share is identical to the basic loss per share in both years, as potential dilutive shares are not treated
as dilutive since they would reduce the loss per share. At the date of approval of the report 3,104,186 of share options were
in issue under the Company’s LTIP, CSOP, Bonus Share Plan, Retention and Performance Share Plan (RPSP) and Retention
Share Plan (RSP), which are considered non-dilutive and potentially provide 3,104,186 additional Ordinary Shares (approximately
2.7% of the current share capital). The level of options exercisable under the LTIP is dependent on the achievement of
targets against the Compound Annual Growth Rate in the Company’s share price over the vesting period.
12. Taxation
Recognised in the income statement:
Current income tax
Current income tax – adjustments in respect of prior years
Deferred tax
Total tax credit
Reconciliation of total tax credit:
Loss for the year
Taxation
Loss before tax
Standard rate of corporation tax in the UK
Tax using the UK corporation tax rate
Expenses not deductible for tax purposes
R&D tax credits – current year
Adjustments in respect of prior years
Unrelieved tax losses carried forward and other temporary differences not recognised for deferred tax
Total tax credit
Year ended
31 December
2018
£000
Year ended
31 December
2017
£000
1,500
1,859
—
3,359
—
1,406
—
1,406
Year ended
31 December
2018
£000
Year ended
31 December
2017
£000
(1,794)
3,359
(5,153)
19%
(979)
281
1,500
1,859
682
3,359
(19,588)
(1,406)
(20,994)
19.25%
(4,041)
111
—
1,408
3,928
1,406
Factors affecting the future tax charge
A reduction in the UK corporation tax rate from 19% to 17% (effective from 1 April 2020) was substantively enacted on
6 September 2016. This will reduce the Group’s future current tax charge accordingly. The deferred tax assets and liabilities
at 31 December 2018 have been calculated based on this rate.
Shield Therapeutics plc
Annual report and accounts 2018 59
Financial statements Notes (forming part of the financial statements) continued
for the year ended 31 December
12. Taxation continued
Unrecognised deferred tax assets
There is a potential deferred tax asset in respect of the unutilised tax losses, which has not been recognised due
to the uncertainty of available future taxable profits.
Unutilised Swiss tax losses to carry forward
Potential deferred tax asset thereon
Unutilised German tax losses to carry forward
Potential deferred tax asset thereon
Unutilised UK tax losses to carry forward
Potential deferred tax asset thereon
Total potential deferred tax asset
2018
£000
11,110
1,387
26
4
20,114
3,419
4,810
2017
£000
16,187
2,020
109
16
34,320
5,637
7,673
The current asset of £1.5 million at 31 December 2018 (2017: £Nil) relates to the anticipated R&D tax credit claim in respect
of the 2018 financial year.
13. Property, plant and equipment
Group
Cost
1 January
Additions
31 December
Accumulated depreciation
1 January
Charge for the period
31 December
Net book value
The Company had no property, plant and equipment (2017: £Nil).
2018
£000
2017
£000
29
—
29
16
5
21
8
29
—
29
10
6
16
13
14. Intangible assets
Group
Cost
Balance at 1 January 2017
Additions – externally purchased
Additions – internally developed
Balance at 31 December 2017
Additions – externally purchased
Additions – internally developed
Balance at 31 December 2018
Accumulated amortisation
Balance at 1 January 2017
Charge for the period
Balance at 31 December 2017
Charge for the period
Balance at 31 December 2018
Net book value
31 December 2018
31 December 2017
60
Shield Therapeutics plc
Annual report and accounts 2018
Feraccru®
Patents and development
costs
trademarks
£000
£000
Phosphate
Therapeutics
licences
£000
Total
£000
31,126
235
3,173
34,534
346
2,999
27,047
—
—
27,047
—
—
27,047
37,879
1,702
2,012
3,714
1,851
5,565
2,142
2,431
4,573
2,349
6,922
1,440
235
—
1,675
346
—
2,021
325
92
417
71
488
2,639
—
3,173
5,812
—
2,999
8,811
115
327
442
427
869
1,533
1,258
7,942
5,370
21,482
23,333
30,957
29,961
14. Intangible assets continued
At the year end management reviewed the carrying value of the intangible assets for impairment. The intangible assets
relate to two cash-generating units, being the Feraccru® business and the Phosphate Therapeutics Limited business.
The recoverable amount has been determined based on value-in-use calculations, using pre-tax cash flow projections
for the period of the patents. The following key assumptions have been included in the value-in-use calculations:
Feraccru®
• The value in use has been calculated based on out-licensing income which expires in 2035, being the current patent life of
the asset.
• Anticipated sales are based on a third party assessment provided to the Company.
• A discount factor of 15% in Europe, reflecting the Marketing Authorisation already obtained for the drug and commercial
progress to date, and 20% in the US, reflecting the higher perceived risks of commercialisation pre-FDA approval.
Phosphate Therapeutics Limited
• The value in use has been calculated based on out-licensing income which expires in 2029, being the current patent life of
the asset.
• Anticipated sales are based on a third party assessment provided to the Company.
• A discount factor of 15%, reflecting the inherent uncertainty attached to obtaining Marketing Authorisation for the drug
and an anticipated out-licensing business model.
The carrying amount of intangible assets has been allocated to the cash-generating units (CGUs) as follows:
Feraccru®
Phosphate Therapeutics Limited
2018
£000
9,475
21,482
30,957
2017
£000
6,628
23,333
29,961
Management has identified that if the discount rate was changed as follows this would result in the recoverable amount
in respect of the assets reducing so as to equal their carrying amount.
Discount rate
The Company has no intangible assets (2017: £Nil).
15. Investments
Company
Cost
1 January
Additions
Disposals
31 December
Accumulated impairment
1 January and 31 December
Net book value
31 December
1 January
Feraccru®
Europe
Feraccru®
US
Phosphate
Therapeutics
Limited
58%
300%
25%
2018
£000
2017
£000
163,380
717
—
164,097
162,968
1,912
(1,500)
163,380
(60,400)
(60,400)
103,697
102,980
102,980
102,568
Additions and disposals of £1.5 million in the prior year relate to the incorporation and dissolution of Snow Jersey Limited
(see notes below).
Other additions of £0.7 million (2017: £0.4 million) relate to investments during the year arising due to share-based payments
costs in respect of Group share-based payments arrangements.
Shield Therapeutics plc
Annual report and accounts 2018 61
Financial statements
Notes (forming part of the financial statements) continued
for the year ended 31 December
15. Investments continued
The Group’s equity interests were as follows:
At 31 December 2018 and 31 December 2017
Group company
Phosphate Therapeutics Limited
Shield TX (Switzerland) AG (formerly Iron Therapeutics Holdings AG)
Shield TX (UK) Limited (formerly Iron Therapeutics (UK) Limited)*
Shield Therapeutics (DE) GmbH*
* Investment held indirectly
Holding
100%
100%
100%
100%
Country of incorporation
United Kingdom
Switzerland
United Kingdom
Germany
Snow Jersey Limited, a company registered in Jersey and held 100% directly by the Company, was incorporated on
2 June 2017 and dissolved on 3 August 2017, as part of a cash box structure used to facilitate the placing undertaken during
the prior year (see Note 22).
The registered office address of Shield Therapeutics (DE) GmbH is c/o Lambsdorff Rechtsanwälte PartGmbB, Oranienburger
Straße 3, 10178 Berlin.
The registered office address of Shield TX (Switzerland) AG is Sihleggstrasse 23, 8832 Wollerau, Switzerland.
The registered office address of Shield TX (UK) Limited and Phosphate Therapeutics Limited is the same as the
Shield Therapeutics plc address shown at Note 1.
At the year end management reviewed the carrying value of the investments for impairment. The investments
relate to two companies, being Shield TX (Switzerland) AG (which holds indirectly the Group’s Feraccru ® asset) and
Phosphate Therapeutics Limited. The recoverable amount has been determined based on value-in-use calculations,
using pre-tax cash flow projections for the period of the patents. The following key assumptions have been included
in the value-in-use calculations:
Shield TX (Switzerland) AG
• The value in use has been calculated based on out-licensing income which expires in 2035, being the current patent life
of the asset.
• Anticipated sales are based on a third party assessment provided to the Company.
• A discount factor of 15% in Europe, reflecting the Marketing Authorisation already obtained for the drug and commercial
progress to date, and 20% in the US, reflecting the higher perceived risks of commercialisation pre-FDA approval.
Phosphate Therapeutics Limited
• The value in use has been calculated based on out-licensing income which expires in 2029, being the current patent life of
the asset.
• Anticipated sales are based on a third party assessment provided to the Company.
• A discount factor of 15%, reflecting the inherent uncertainty attached to obtaining Marketing Authorisation for the drug
and an anticipated out-licensing business model.
The carrying amount of investments has been allocated to the above companies as follows:
Shield TX (Switzerland) AG
Phosphate Therapeutics Limited
2018
£000
76,933
26,764
2017
£000
76,216
26,764
103,697
102,980
Management has identified that if the discount rate was changed as follows this would result in the recoverable amount
in respect of the assets reducing so as to equal their carrying amount.
Shield TX
(Switzerland) AG
– European market
Shield TX
(Switzerland) AG
– US market
Phosphate
Therapeutics
Limited
37%
100%
20%
Discount rate
62
Shield Therapeutics plc
Annual report and accounts 2018
16. Inventories
Group
Raw materials
Finished goods
2018
£000
34
75
109
2017
£000
105
20
125
The cost of inventories recognised as an expense and included in cost of sales was £161,000 (2017: £81,000). Cost of sales
includes royalties payable to Vitra Pharmaceuticals Limited.
The Company had no inventories (2017: £Nil).
17. Trade and other receivables
Trade receivables
Other receivables
Prepayments
Amounts due from Group undertakings
At the year end no trade receivables were past due or impaired (2017: £Nil).
18. Cash and cash equivalents
Cash at bank and in hand
19. Trade and other payables
Trade payables
Accruals
20. Other liabilities
Taxation and social security
Other payables
Group
Company
2018
£000
256
206
569
—
1,031
2017
£000
51
478
1,043
—
1,572
2018
£000
—
58
14
35,752
35,824
2017
£000
—
39
21
33,766
33,826
Group
Company
2018
£000
9,776
2017
£000
13,299
2018
£000
9,003
2017
£000
11,807
Group
Company
2018
£000
22
2,526
2,548
2017
£000
1,802
1,699
3,501
2018
£000
—
685
685
Group
Company
2018
£000
202
201
403
2017
£000
227
35
262
2018
£000
—
81
81
2017
£000
87
214
301
2017
£000
—
—
—
21. Risk management
The Group is exposed to a variety of risks such as market risk, credit risk, foreign currency risk and liquidity risk.
The Group’s principal financial instruments are:
• Financial liabilities measured at amortised cost; and
• Trade and other receivables, trade and other payables, and cash and short term deposits arising directly from operations.
This note provides further detail on financial risk management and includes quantitative information on the specific risks.
Shield Therapeutics plc
Annual report and accounts 2018 63
Financial statements
Notes (forming part of the financial statements) continued
for the year ended 31 December
21. Risk management continued
Fair values
The carrying values of financial assets and liabilities reasonably approximate their fair values.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes
in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and credit risk.
The Group’s exposure is currently primarily to the financial risk of changes in foreign currency exchange.
Sensitivity analysis
The Group recognises that movements in certain risk variables (such as foreign exchange rates) might affect the value of its
loans and also the amounts recorded in its equity and its profit and loss for the period. Therefore the Group assessed the
following risks:
Foreign currency risk
The following tables consider the impact of several changes to the spot £/Euro and £/USD exchange rates of +/–5%. If these
changes were to occur the tables below reflect the impact on loss before tax. Only the impact of changes in Euro and
US Dollar denominated balances have been considered as these are the most significant non-GBP denominations used
by the Group.
EUR
USD
EUR
USD
Change in GBP
vs. EUR rate
+5.00%
-5.00%
+5.00%
-5.00%
Change in GBP
vs. EUR rate
+5.00%
-5.00%
+5.00%
-5.00%
Effect on loss before tax
Year
ended
31 December
2018
£000
Year
ended
31 December
2017
£000
(214)
214
(108)
108
(437)
437
(197)
197
Effect on equity
Year
ended
31 December
2018
£000
Year
ended
31 December
2017
£000
(214)
214
(108)
108
(442)
442
(197)
197
Liquidity risk
Cash flow is regularly monitored and the relevant subsidiaries are aware of their working capital commitments. The Group reviews
its long term funding requirements in parallel with its long term strategy, with an objective of aligning both in a timely manner.
The table below summarises the maturity profile of the Group’s undiscounted financial liabilities at 31 December 2018 and 2017.
Liquidity risk – 31 December 2018
Financial liabilities
Trade and other payables
Liquidity risk – 31 December 2017
Financial liabilities
Trade and other payables
64
Shield Therapeutics plc
Annual report and accounts 2018
On demand
£000
Less than
one year
£000
Between
two and More than
five years
£000
five years
£000
Total
£000
—
—
—
—
—
On demand
£000
Less than
one year
£000
Between
two and
five years
£000
More than
five years
£000
Total
£000
—
1,802
—
—
1,802
21. Risk management continued
Liquidity risk continued
The table below summarises the maturity profile of the Company’s undiscounted financial liabilities at 31 December 2018
and 31 December 2017.
Liquidity risk – 31 December 2018
Financial liabilities
Trade and other payables
Liquidity risk – 31 December 2017
Financial liabilities
Trade and other payables
On demand
£000
Less than
one year
£000
Between
two and More than
five years
£000
five years
£000
Total
£000
—
—
—
—
—
On demand
£000
Less than
one year
£000
Between
two and
five years
£000
More than
five years
£000
Total
£000
—
87
—
—
87
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument leading to a financial loss.
The Group is primarily exposed to credit risk from its financing activities in relation to its deposits with banks and financial
institutions. There is considered to be no material credit risk associated with receivables. The Group’s maximum exposure
is shown at Note 17.
Credit risk from balances with banks and financial institutions is managed by depositing with reputable financial institutions,
from which management believes the risk of loss to be remote. The Group’s maximum exposure to credit risk for the
components of the statement of financial position is the carrying amounts of cash at bank and in hand.
22. Share capital
At 1 January
Exercise of Warrants
Issuance of shares pursuant to placing
Issuance of shares pursuant to subscription
At 31 December
2018
Number
000
116,426
—
—
—
2017
Number
000
108,135
7,194
1,000
97
£000
1,746
—
—
—
116,426
1,746
116,426
£000
1,622
108
15
1
1,746
Fundraising
During the prior year the Company raised gross proceeds of £12.4 million through the combination of an exercise
of Warrants, institutional placing and subscription for shares. Details of these transactions are provided below.
Exercise of Warrants
As part of the listing process 11,666,658 Warrants were issued to participants in the placing, which traded under the ticker
STXW. The Warrants were scheduled to expire at 30 June 2017.
During June 2017 7,193,766 Warrants were exercised at a strike price of £1.50, raising gross proceeds of £10.8 million.
The remaining 4,472,892 Warrants lapsed at 30 June 2017.
Placing
On 28 June 2017 the Company issued an additional 1,000,000 Ordinary Shares to participants in a placing, raising gross
proceeds of £1.5 million. The placing was undertaken by means of a cash box structure. Consequently relief was available
under s612 of the Companies Act 2006 from recording share premium and the difference between net proceeds and the
nominal value of shares issued was transferred to retained earnings.
Subscription
On 28 June 2017 the Company’s Directors and senior management subscribed to an issue of 96,669 Ordinary Shares,
raising gross proceeds of £145,000.
Expenses of £0.5 million were incurred in the course of the exercise of Warrants, placing and subscription.
Shield Therapeutics plc
Annual report and accounts 2018 65
Financial statements Notes (forming part of the financial statements) continued
for the year ended 31 December
23. Reserves
The Group’s balance sheet contains the following reserves:
• Share capital – the share capital reserve contains the nominal value of the issued Ordinary Shares of the Company.
• Share premium – the share premium reserve contains the proceeds of share capital issued, less the nominal cost
and the issue cost of the Company’s shares.
• Merger reserve – this reserve records any difference in share capital between the former Shield Holdings AG group
and the Shield Therapeutics plc Group, which replaced it on reorganisation.
• Currency translation reserve – this reserve contains currency translation differences arising from the translation
of foreign operations.
• Retained earnings – this reserve contains the accumulated losses and other comprehensive expenditure of the Group.
24. Share-based payments
The Group grants rights to the parent entity’s equity instruments to certain employees, which are accounted
for as equity-settled or cash-settled in the consolidated financial statements.
Long Term Incentive Plan (LTIP)
The Group operates a share option scheme for the Executive Directors of the Company and the Group’s senior management
team. The scheme is intended to attract, retain and incentivise participants, whilst encouraging higher standards of performance
and aligning the objectives of the senior management team with those of shareholders. The plan was established in February
2016 as part of the IPO process.
The total expense recognised for share-based payments, in relation to the LTIP, in the Group’s financial statements during
the year was £540,000 (2017: £541,000).
The terms and conditions of grants are as follows:
Grant date
March 2016
July 2016
September 2016
July 2017
Equity
Equity
Equity
Equity
Method of settlement
accounting
Number of
instruments
Vesting date
1,773,581
February 2019
80,000
253,144
July 2019
September 2019
February 2026
1,683,877
July 2020
July 2027
Contractual life
of options
February 2026
July 2026
Remaining contractual life
of options
8 years
8 years
8 years
9 years
The vesting of awards under the LTIP is conditional on the achievement of a performance target, based on the Compound
Annual Growth Rate (CAGR) in the Company’s share price. CAGR is measured against the target based on the increase
in the price from the first day of the year to the last day of the year over each discrete year in the performance period.
The March 2016 and September 2016 awards vest as follows:
• One-third on 25 February 2017, one-third on 25 February 2018 and one-third on 25 February 2019 in the event of a CAGR
of 11.7% in the Company’s share price.
The July 2016 awards vest as follows:
• One-third on 25 July 2017, one-third on 25 July 2018 and one-third on 25 July 2019 in the event of a CAGR of 11.7%
in the Company’s share price.
The July 2017 awards vest as follows:
• One-third on 31 December 2017, one-third on 31 December 2018 and one-third on 31 December 2019 in the event
of a CAGR in the Company’s share price of at least 9.6%. A growth of 9.6% results in a minimum entitlement for each
participant. The percentage growth triggering maximum entitlement varies by participant, but in no case exceeds 19.6%.
66
Shield Therapeutics plc
Annual report and accounts 2018
24. Share-based payments continued
Long Term Incentive Plan (LTIP) continued
The number of share options are as follows:
Outstanding at the beginning of the year
Granted during the year
Forfeited/lapsed during the year
Outstanding at the end of the year
Exercisable at the end of the year
Number of options
Year ended
31 December
2018
Year ended
31 December
2017
1,594,575
—
(967,549)
1,523,393
1,683,877
(1,612,695)
627,026
1,594,575
—
—
The fair value of services received in return for share options granted is measured by reference to the fair value of share
options granted. The fair value of the services received is measured using a Monte Carlo valuation model. Measurement
inputs and assumptions are as follows:
Weighted average share price
Exercise price
Expected volatility
Expected option life
Expected dividends
Risk-free interest rate (based on UK government bonds)
Fair value at measurement date
July
2017
£0.69
£0.015
44%
3 years
Nil
0.37%
March
2016
£0.79
£0.015
44%
3 years
Nil
0.6%
July
2016
September
2016
£0.75
£0.015
43%
3 years
Nil
0.17%
£0.60
£0.015
44%
3 years
Nil
0.16%
£0.69
£0.79
£0.75
£0.60
The expected volatility is based on the historical volatility of quoted companies in a similar market environment.
The exercise of share options is conditional on a CAGR in the Company’s share price as illustrated above.
Company Share Option Plan (CSOP)
The Group operates a share option scheme which is able to issue both HMRC-approved and unapproved options to
employees of the Group. The scheme is intended to attract, retain and incentivise participants, whilst encouraging higher
standards of performance and aligning the objectives of employees with those of shareholders. The plan was established
in February 2016 as part of the IPO process.
The total expense recognised for share-based payments, in relation to the CSOP, in the Group’s financial statements during
the year was £21,000 (2017: £19,000).
The terms and conditions of grants are as follows:
Grant date
July 2017
May 2018
October 2018
Method of
settlement
accounting
Equity
Equity
Equity
Number of
instruments
288,610
600,000
67,164
Vesting
date
Contractual
life of options
July 2020
May 2021
October 2021
July 2027
May 2028
October 2028
Remaining
contractual
life of options
9 years
10 years
10 years
Of the 288,610 share options issued to CSOP participants in July 2017, 60,034 were issued to participants in the LTIP scheme
and vest under the same conditions described for the LTIP award in July 2017. LTIP participants have the choice of exercising
their LTIP award in full or scaling back their LTIP award in order to receive their CSOP equivalent. LTIP participants are unable
to exercise both awards in full and potentially dilutive shares therefore exclude the element of the above options which is
effectively double counted. Awards which are not associated with the LTIP have no vesting conditions.
Shield Therapeutics plc
Annual report and accounts 2018 67
Financial statements Notes (forming part of the financial statements) continued
for the year ended 31 December
24. Share-based payments continued
Company Share Option Plan (CSOP) continued
The number of share options is as follows:
Outstanding at the beginning of the year
Granted during the year
Forfeited/lapsed during the year
Outstanding at the end of the year
Exercisable at the end of the year
Number of options
Year ended
31 December
2018
Year ended
31 December
2017
171,658
667,164
(280,690)
558,132
—
—
288,610
(116,952)
171,658
—
The fair value of services received in return for share options granted is measured by reference to the fair value of share
options granted. The fair value of the services received is measured using a Black Scholes valuation model. Measurement
inputs and assumptions are as follows:
Weighted average share price
Exercise price
Expected volatility
Expected option life
Expected dividends
Risk-free interest rate (based on UK government bonds)
Fair value at measurement date
October
2018
£0.09
£0.255
51%
3 years
Nil
0.86%
May
2018
£0.09
£0.255
51%
3 years
Nil
0.86%
July
2017
£0.47
£1.575
44%
3 years
Nil
0.04%
£0.09
£0.09
£0.47
The expected volatility is based on the historical volatility of quoted companies in a similar market environment.
Retention Share Plan (RSP)
The Group operates a share option scheme for the Executive Directors of the Company and the Group’s senior
management team. The scheme is intended to attract, retain and incentivise participants, whilst encouraging higher
standards of performance and aligning the objectives of the senior management team with those of shareholders.
The total expense recognised for share-based payments, in relation to the RSP, in the Group’s financial statements
during the year was £161,000 (2017: £Nil). There are no vesting conditions associated with the awards other than continued
employment with the Group at the vesting date.
The terms and conditions of grants are as follows:
Method of
settlement
accounting
Equity
Equity
Number of
instruments
Vesting
date
Contractual
life of options
99,286 December 2018
152,490 December 2019
January 2028
January 2028
Remaining
contractual
life of options
9 years
9 years
Number of options
Year ended
31 December
2018
Year ended
31 December
2017
—
251,776
(90,123)
161,653
99,286
—
—
—
—
—
Grant date
January 2018
January 2018
The number of share options are as follows:
Outstanding at the beginning of the year
Granted during the year
Forfeited/lapsed during the year
Outstanding at the end of the year
Exercisable at the end of the year
68
Shield Therapeutics plc
Annual report and accounts 2018
24. Share-based payments continued
Retention Share Plan (RSP) continued
The fair value of services received in return for share options granted is measured by reference to the fair value of share
options granted. The fair value of the services received is measured using a Black Scholes valuation model. Measurement
inputs and assumptions are as follows:
Weighted average share price
Exercise price
Expected volatility
Expected option life
Expected dividends
Risk-free interest rate (based on UK government bonds)
Fair value at measurement date
January
2018
£1.13
£0.015
40%
1 year
Nil
0.5%
£1.13
January
2018
£1.11
£0.015
44%
2 years
Nil
0.5%
£1.11
The expected volatility is based on the historical volatility of quoted companies in a similar market environment.
Retention and Performance Share Plan (RPSP)
The Group operates a share option scheme for the Executive Directors of the Company and the Group’s senior management
team and staff. The scheme is intended to attract, retain and incentivise participants, whilst encouraging higher standards
of performance and aligning the objectives of the senior management team with those of shareholders.
The total expense recognised for share-based payments, in relation to the RPSP, in the Group’s financial statements during
the year was £291,000 (2017: £Nil).
The terms and conditions of grants are as follows:
Grant date
May 2018
Method of settlement Number of
accounting
instruments
Equity or cash
846,777
May 2018
Equity
2,692,800
October 2018 Equity
400,000
The number of share options are as follows:
Outstanding at the beginning of the year
Granted during the year
Forfeited/lapsed during the year
Exercised during the year
Outstanding at the end of the year
Exercisable at the end of the year
Vesting conditions
Vesting date
Contractual life
of options
Employment at 31 December 2018. December 2018 May 2028
Achievement of four corporate
performance conditions.
Entitlement is scaled back by 25%
for every condition not met.
50% vest based on continued
employment at 1 January 2019,
25% based on continued
employment at 1 April 2019
and 25% based on continued
employment at 1 July 2019.
December 2020 May 2028
May 2028
July 2019
Remaining
contractual life
of options
9 years
9 years
9 years
Number of options
Year ended
31 December
2018
Year ended
31 December
2017
—
3,939,577
(1,490,111)
(569,719)
1,879,747
—
—
—
—
—
—
—
Shield Therapeutics plc
Annual report and accounts 2018 69
Financial statements Notes (forming part of the financial statements) continued
for the year ended 31 December
24. Share-based payments continued
Retention and Performance Share Plan (RPSP) continued
The remaining contractual life of options is one year. The fair value of services received in return for share options granted
is measured by reference to the fair value of share options granted. The fair value of the services received is measured
using a Monte Carlo valuation model in respect of the May 2018 equity-based award and a Black Scholes model in respect
of the October 2018 equity-based award. Measurement inputs and assumptions are as follows:
Weighted average share price
Exercise price
Expected volatility
Expected option life
Expected dividends
Risk-free interest rate (based on UK government bonds)
Fair value at measurement date
October
2018
£0.32
£0.015
42%
1 year
Nil
0.86%
£0.32
May
2018
£0.03
£0.015
51%
3 years
Nil
0.83%
£0.03
The expected volatility is based on the historical volatility of quoted companies in a similar market environment.
The May 2018 award of 846,777 options was eligible for settlement on either a cash or equity basis and therefore qualified
as a compound financial instrument. As the option was structured so that each alternative had the same value the award
was valued based on the fair value of the debt element. As the options vested within one year the fair value of the debt
was undiscounted.
Bonus Share Plan (BSP)
The Group operates a share option scheme for the Executive Directors of the Company and the Group’s senior
management team. The scheme is intended to defer the cash cost to the Company of senior management bonuses.
The total expense recognised for share-based payments, in relation to the BSP, in the Group’s financial statements during
the year was £200,000 (2017: £Nil). There are no performance conditions associated with the award.
The terms and conditions of grants are as follows:
Grant date
May 2018
The number of share options are as follows:
Number of
Method of
settlement accounting instruments
Vesting
date
Contractual
life of options
Remaining
contractual
life of options
Equity or cash
899,203 May 2019
May 2028
9 years
Outstanding at the beginning of the year
Granted during the year
Forfeited/lapsed during the year
Outstanding at the end of the year
Exercisable at the end of the year
Number of options
Year ended
31 December
2018
Year ended
31 December
2017
—
899,203
(512,876)
386,327
—
—
—
—
—
—
The BSP award was eligible for settlement on either a cash or equity basis and therefore qualified as a compound financial
instrument. As the option was structured so that each alternative had the same value the award was valued based on the fair
value of the debt element. A discount rate of 12% was applied in arriving at the fair value of the debt.
70
Shield Therapeutics plc
Annual report and accounts 2018
25. Capital and leasing commitments
The Group and parent company had no material capital commitments at either the current or prior period end.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Less than one year
One to five years
More than five years
Group
2018
£000
150
—
—
150
2017
£000
467
—
—
467
Company
2018
£000
2017
£000
—
—
—
—
—
—
—
—
The lease expense in respect of the year was £462,000 (2017: £418,000).
26. Capital management policy
The primary objective of the Group’s capital management is to ensure that it has the capital required to operate and grow
the business at a reasonable cost of capital without incurring undue financial risks. The Board periodically reviews its capital
structure to ensure it meets changing business needs. The Group defines its capital as its share capital, share premium
account and retained earnings. There have been changes to the capital requirements each year as the Group has required
regular suitable levels of capital injections to fund development. As mentioned above the Board periodically monitors the
capital structure of the Group. The table below details the net capital structure at the relevant balance sheet dates.
Cash and cash equivalents
27. Post balance sheet events
None noted.
2018
£000
9,776
2017
£000
13,299
Shield Therapeutics plc
Annual report and accounts 2018 71
Financial statements
Glossary
CHF
CKD
EU5
FDA
GFR
H2H
Hb
IBD
ID
IDA
IV
NDA
PDUFA
WHO
Chronic heart failure
Chronic kidney disease
Five largest EU markets (France, Germany, Italy, Spain and the UK)
US Food and Drug Administration
Glomerular Filtration Rate
AEGIS-Head-to-Head clinical study
Haemoglobin
Inflammatory Bowel Disease
Iron Deficiency
Iron Deficiency Anaemia
Intravenous
New Drug Application (US)
Prescription Drug User Fee Act (US)
World Health Organization
72
Shield Therapeutics plc
Annual report and accounts 2018
Advisors
Nominated advisor
and broker
Peel Hunt LLP
120 London Wall
London
EC2Y 5ET
Auditor
KPMG LLP
Quayside House
110 Quayside
Newcastle upon Tyne
NE1 3DX
Legal advisor
Stephenson Harwood LLP
1 Finsbury Circus
London
EC2M 7SH
Tax advisor
Ernst & Young LLP
Citygate
St James’ Boulevard
Newcastle upon Tyne
NE1 4JD
Registrar
Link Asset Services
Limited
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TH
Financial PR
Walbrook PR Limited
4 Lombard Street
London
EC3V 9HD
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2
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1
8
London
Shield Therapeutics plc
16 Upper Woburn Place
Euston, London
WC1H 0AF
t +44 (0)207 186 8500
e info@shieldtx.com
Newcastle
Shield Therapeutics plc
Northern Design Centre
Baltic Business Quarter
Gateshead Quays
NE8 3DF
t +44 (0)191 511 8500
e info@shieldtx.com